Threat of New Entrants
If we want to decide the strengthen costumer and supplier intimacy, we can use a tool : SWOT Analysis.
The threat of new entrants is very low in the automobile industry. The industry is very mature and it has successfully reached economies of scale. In order to compete in this industry a manufacture must be able to achieve economies of scale. For this to occur, manufacturers must mass-produce the automobiles so that they are affordable to the consumer. Another barrier to entry is that it takes an incredible amount of capital to manufacture the automobiles. It takes an extreme amount of capital not only to be able to manufacture the products but also to keep up with the research and development that is necessary for the innovation requirements. Access to distribution channels is another high barrier to entry. A company must find a dealership to sell their automobiles or have their own dealership. Space in the dealerships lots is very limited making it difficult to have a wider variety of inventory.
Bargaining Power of Suppliers
The bargaining power of suppliers is very low in the automobile industry. There are so many parts that are used to produce an automobile, that it takes many suppliers to accomplish this. When there are many suppliers in an industry, they do not have much power. There are so many suppliers to this industry; manufactures can easily switch to another supplier if it is necessary.
Bargaining Power of Buyers
The bargaining power of the buyers is moderately high. The buyers being consumers purchase almost all of the industries output. The manufacturers depend on them to stay in business. The buyers also are a significant portion of the industries revenue. If they can not keep their buyers happy then they risk losing them to their competitors. The buyers have low switching cost if they are not happy. All the buyer has to do is sell the car they own and purchase a new one. The reasons why the power is not completely high is that the buyers are not large and few in number. The buyers do not have the ability to integrate backwards into the industry. If they want a car then they have to purchase it from a dealership.
Threat of Substitute Products
There are not many substitute products for automobiles. Some of the substitutes are walking, riding bike or taking a train. Substitutes products all depend on the geographic location of the consumer. In some cities such as New York or Chicago, a car is not as necessary. In cities such as those, the subway is the most effective means of transportation. However, in most places a person must have access to an automobile in order to get around.
Intensity of Rivalry among Competitors
Rivalry among the competitors is very strong is this industry. The major competitors are so closely balanced that it increases the rivalry. In order to gain market share in the automobile must gain market share by taking it from their competitors. One of the other reasons there is such high rivalry is that there is a lack of differentiation opportunities. All the companies make cars, trucks or SUV's. The competitors are compared to one another constantly. The price, quality, durability, and many other aspects of different manufacturers are greatly taken into consideration when deciding what type of vehicle to purchase. When the different manufacturers advertise they even compare their products to their competitors. For example, the commercials will focus on areas where the company outperforms its competitors.
DamilerChrysler SWOT Analysis
As the number two auto manufacturer in total revenues DaimlerChrysler has positioned itself as an industry leader, with this come many strengths. The DaimlerChrysler umbrella covers many well-known brands such as Dodge, Chrysler, Mercedes Benz, and Jeep. This means DaimlerChrysler has strong brands that are recognizable in almost every part of the world. Within these brands DaimlerChrysler also has wide variety of automobile products that span all price ranges and model types, from economy cars to luxury models. Brands such as Jeep are recognized worldwide for off-road and SUV vehicles, while Mercedes Benz is one of the highest quality luxury car makers in the industry. DaimlerChrysler is even represented in the realm of ultra luxury with its Maybach brand which competes directly with manufacturers such as Bentley and Rolls Royce.
In the arena of American car makers the Chrysler brand stands out as a leading innovator in vehicle design. Chrysler is well known for category breaking models such as the PT Cruiser and Plymouth Prowler. The Dodge Viper is a vehicle that broke away from the mold of other American sports cars to drive the imagination of car buyers, and increase the connection of style and image with DaimlerChrysler vehicles.
The merger of Chrysler and Daimler Benz which created DaimlerChrysler gave the company a large worldwide presence. This presence is a quality one because DaimlerChrysler is considered to be one of most respected companies worldwide according to a Financial Times survey of world corporate leaders. This presence is further increased by DaimlerChrysler's strategic partnership with Japanese car maker Mitsubishi. This partnership gives DaimlerChrysler presence in the Asian regions which is does not currently enjoy with its current stable of brands. This partnership will not only allow for greater product visibility for DaimlerChrysler in one of the largest automobile markets, but will also allow for sharing of technology between DaimlerChrysler and Mitsubishi.
DaimlerChrysler is currently a leader in hydrogen fuel cell technology. Hydrogen, considered to be the next big breakthrough in automobile engines, has the ability to revolutionize the industry. If or when this is the case DaimlerChrysler's commitment to research and development of the technology will help ensure the company remains on the top of the automotive world.
With all of the strengths that come with being a top auto manufacturer every company must also face weaknesses that can arise from the current business landscape and DaimlerChrysler is not immune to these shortcomings. As the automotive industry continues to move in the direction of globalization it is important for manufacturers to be strongly represented in all large and emerging world markets. Although DaimlerChrysler is well represented in the American and European markets they are not strongly represented in the Asian markets. DaimlerChrysler has no brands of its own that command significant market share in either the Japanese or emerging Chinese markets. DaimlerChrysler's partial stake in Mitsubishi was supposed to be an answer to this problem but current drops in Mitsubishi's market share accompanied by other problems has left DaimlerChrysler's future investments in Mitsubishi uncertain, and more importantly with no strong plan to compete in Asian markets.
Related to the problem of Asian representation is the reality that none of DaimlerChrysler's brands are truly marketable to worldwide consumers. Brands such as Dodge and Chrysler are strong in the US, but have had limited success in other markets. The Mercedes Benz brand is the most recognizable world wide, but as a luxury car maker it is harder to market to a majority of consumers in different markets. The Jeep brand is well known and respected throughout most markets, but its appeal is limited to the specialized group of SUV and off-road buyers.
The growing use of hybrid engines could also cause problems for DaimlerChrysler. There strategy to focus on the entirely new hydrogen technology has left them behind many other major manufacturers in the development of hybrid technology. As other major car companies are preparing to roll out hybrid options for many of there most popular models DaimlerChrysler does not plan to do the same anytime soon. By hitching there wagon to hydrogen power and not trying to capitalize on rising hybrid trends DaimlerChrysler could be missing out.
What has been billed as a merger between America's Chrysler and Germany's Daimler Benz has turned out to be more of an acquisition of Chrysler by Daimler Benz. The result is that most top managers of DaimlerChrysler are from Daimler Benz and many of the leaders of Chrysler choose to leave or retire. Many have speculated this "brain-drain" of Chrysler executives could hurt the innovative reputation of the American brands in DaimlerChrysler's portfolio of manufacturers. Much of the operations of DaimlerChrysler have also been moved to Germany where current wage rates and labor laws have made it hard for DaimlerChrysler to cut costs and bolster its bottom line.
With the evolution and changing environment of the Automotive industry DaimlerChrysler has many opportunities to increase its strengths and fix some weaknesses. With DaimlerChrysler's current shortage of Asian market share there Jeep brand could be a bright spot. With the growing trend of consumerism in China it is currently the fastest growing auto market in the world, and the Chinese desire for all things American could provide DaimlerChrysler with a golden opportunity. In Chinese surveys of the most sought after American brands in China, Jeep is in the top 5. DaimlerChrysler has also recently inked deals to build manufacturing plants for Mercedes Benz in Beijing, China. These recent developments provide DaimlerChrysler with more chances to push its products into a hugely coveted consumer market.
The decision to focus on hydrogen power research and development could also bode well for DaimlerChrysler if the current prices of oil and gas become a future standard. The high prices will help to put more focus and energy into viable fuel alternatives which could push the demand for hydrogen powered vehicles, as well as provide opportunities for government subsidies for continuing advancement of the technology. As a leader in hydrogen power DaimlerChrysler is poised to be a large benefactor of any of these scenarios.
Along with new opportunities come the inevitable threats and opportunity costs associated with any course of action which have the ability to affect DaimlerChrysler.
A current major threat is the shaky alliance between DaimlerChrysler and Mitsubishi. The current downturn of Mitsubishi has left DaimlerChrysler in a very vulnerable condition. If they continue in the partnership and hope Mitsubishi can pull out of its slump DaimlerChrysler could still face the consequences of not finding other ways to bolster presence in Asian markets even is Mitsubishi does right the ship. Even worse if Mitsubishi continues to flounder DaimlerChrysler may have to cut its losses and find itself even further behind other manufacturers in the race to sure up some of the largest auto markets in the world.
Another great threat is due to DaimlerChrysler's decision to put all its eggs into the hydrogen fuel basket. If the current trend of hybrid engines continues to catch on and grow throughout world markets DaimlerChrysler's reluctance to follow suit could cause loss of market share to rivals who offer better hybrid engines in more vehicle models. Even worse, if hydrogen proves not to be a viable energy source in the near future than DaimlerChrysler would not be able to profit from recent heavy investments in the technology and be faced with huge sunk and opportunity costs.
DaimlerChrysler has embarked upon a strategy of becoming a world wide leader in the automobile industry, representing all vehicle types across all world markets. This is summed up by DaimlerChrysler's four-pillar strategy. The four pillars include: Global presence, Strong Brands, Broad product range, and Technology leadership.
DaimlerChrysler, formed by a merger of the American Company Chrysler and the German Daimler Benz in 1998, was instrumental in the achievement of many of these pillars. DaimlerChrysler currently sells products in over 200 countries and manufacturing plants in 17. DaimlerChrysler also has headquarters covering all major geographic regions on every continent except Antarctica. After the merger DaimlerChrysler had ownership of several major car manufacturers with certain geographic presence. Daimler Benz was one of Europe's largest car manufacturers, while Chrysler was a leading American country. This gives DaimlerChrysler a large presence in two of the largest auto markets in the world. They also choose to purchase a 30 percent stake in the Japanese Mitsubishi Motors as a way to penetrate the Japanese markets. These three markets are the largest in the world and gives DaimlerChrysler a strong global presence.
DaimlerChrysler also wished to produce strong brands of automobiles with broad product ranges to be offered in these markets. DaimlerChrysler currently lays claim to passenger vehicle brands such as Chrysler, Dodge, Jeep, Mercedes, Maybach, and Smart. They also have ownership of Freightliner, which is one of the largest commercial truck producers in the world.
These brand names represent all vehicle types currently offered to consumers. From Dodge and Chryslers cars and trucks covering all price ranges and styles to Mercedes' and Maybach's representation in the luxury market. Even specialized vehicles are represented; Jeep is a top producer of off-road and SUV vehicles, while the smaller Smart brand produces economical urban vehicles for sale in Europe and the Freightliner brand gives DaimlerChrysler a strong share of the market in the commercial shipping and transportation.
In the arena of Technology leadership DaimlerChrysler boasts that it is a world leader in the development of hydrogen fuel cell powered automobiles. DaimlerChrysler hopes that its research into the new power technology will result in affordable vehicles powered by the alternative fuel source in the neat future. This Technology has the potential to be the next industry standard for engines and DaimlerChrysler is heavily invested in assuring that if or when it is they will be positioned to offer the best hydrogen engines available. They are also looking in the direction of cleaner, more efficient diesel engines as an alternative to hybrid technology. DaimlerChrysler believes that advances in diesel engines are superior to the improvements made by gas/electric hybrids currently offered by many competitors. DaimlerChrysler that strong research into these alternative power sources will facilitate their desire to be a technological leader in innovation among other companies in the automobile manufacturing industry.
Not all strategies are implemented seamlessly and DaimlerChryser is no exception to this. One of DaimlerChrysler's biggest current problems is its weak market penetration in Asia. While they do have a strategic partnership with Mitsubishi motors it is apparent that Mitsubishi isn't fulfilling the high expectations DaimlerChrysler expected. DaimlerChrysler is already on the right track with its plans to open manufacturing facilities in China, but a more immediate impact might be needed to ensure DaimlerChrysler doesn't fall behind in the region. A more immediate presence could be achieved through another strategic partner, specifically with one of the Korean builders Daewoo or Hyundai. Both companies have successful small car divisions, which are a need for DaimlerChrysler, and more importantly they come with distribution centers throughout the Asian market. Both companies have been recently seeking a large partner which provides an opportunity for DaimlerChrysler. The addition of a new Asian partner to the DaimlerChrysler stable can prove to be a great advantage through the immediate presence DaimlerChrysler could gain presence in the underrepresented Asian market, but it could also turn out to be a drawback. By taking on another acquisition or strategic partner DaimlerChrysler could face the same problems it is currently experiencing with Mitsubishi. By only being partners with another Asian firm DaimlerChrysler would not have ultimate control of the partner firm leaving more of a liability than if DaimlerChrysler opted to simply acquire of the company.
DaimlerChrysler could also hedge its bets on hydrogen engines by investing more in hybrid technology to provide more immediate returns. DaimlerChrysler's resistance to go ahead with full scale implementation of hybrid engines has come from a number of sources, most notably their focus on hydrogen and a belief that other fuels, such as diesel, may hold greater promise than hybrids. DaimlerChrysler believes that hybrid power is only an interim step until the before mentioned technologies are realized. Nevertheless, if DaimlerChrysler's assertions about the future of hydrogen power are incorrect they could face large consequences of not embracing hybrid engines. To fill this gap DaimlerChrysler could purchase plans for hybrid engines to hedge their bets of the upcoming market for more efficient fuels. Many manufacturers have begun licensing their hybrid technologies to other manufacturers, and while this isn't as good as DaimlerChrysler producing there own technology, it will allow them to introduce hybrid engines in there own models quicker and not lose precious market share to rivals. This would be an advantage for DaimlerChrysler because the promises of hydrogen power, while great, are still many years away and the use of hybrid engines and technology is growing exponentially in the present. However, DaimlerChrysler believes that more efficient Diesel technology is the better near-term solution t increase fuel economy. If Daimler were to follow the crowd into hybrid technology they could face a loss of investment in new diesel technologies that may well be a better answer than current hybrid technologies.
Toyota Motor Corporation SWOT Analysis
The Toyota Motor Corporation was incorporated in 1937 and has many strengths being one of the industry leaders in the automotive industry. Toyota has three major brands underneath the company umbrella; Toyota, Lexus, and Scion. By having these three distinct brands, it lets the company reach many sectors of the globe in a choice of vehicle for customers. They produce their vehicles and target specific global regions, such as the Carina E for the European segment (Amherst). Toyota has traditionally also been the leader in Total Quality Management or TQM. The belief that no process could ever be declared perfect, and that therefore there was always room for improvement was introduced by Toyota Sakichi (Financial Times). This brought about the Japanese word, Kaizen meaning continuous improvement (Financial Times). By using the Kaizen theory of continuous improvement, Japan caught up the U.S. auto makers during the 1980's (Financial Times). Toyota has also introduced it's newest hybrid power car, Toyota Pirus, at the 2003 New York Auto Show and hit the dealerships in the fall of 2004 (Toyota). In September of 2003, orders for the new and improved Pirus totaled 17,500 which is five times more then the company target of 3000 (MSNBC). With the price of gasoline and oil ever rising, this is a great market for Toyota to exploit.
Toyota does have some company traits that are portrayed as a weakness in the industry. The brand Toyota is not perceived as many to be prestigious (Amherst). Another perceived weakness is that it is in the top five of sales but not in the top five in dividend payouts or stock performance (Yahoo Finance). This may put up a red flag to investors around the globe that Toyota is not paying dividends as frequent or as efficiently as they should to their shareholder of the company. In Europe, the Lexus brand sold 18,206 vehicles last year compared with 509,720 BMW's. The reason for this is the Lexus brand lacks the diesel V-8 engine (Bloomberg). In certain European countries such as Belgium and Greece, diesels make up 90 percent of BMW sales in part to the tax subsidies the consumer receives (Bloomberg).
The opportunities for the Toyota Motor Company seem to be endless. Today, Toyota has passed the Ford Motor Company to become the world's second largest automaker in the world trailing only GM (Forbes). Toyota has also rounded out it's product line to suit the U.S. market with the redesigned passenger trucks and SUV, but they have also hit the market hard with eco-crazed society with the introduction of the second generation hybrid car, the Prius (Business week). The company is also being pushed in the right direction for opportunity with the strengthening of the Japanese Yen (Bloomberg). With the yen gaining strength and shifts in other world currency, the operating profits dropped during the April-June quarter by fifteen percent or seventy billion yen (Bloomberg). Because of the saving the company acquired in currency shifts, Toyota has extra money on hand to use possibly in R&D to improve on their vehicles or in several other areas causing great opportunities for the company. Toyota has doubled its market share in Europe in the past four years to 5.1 percent due to import restrictions being dropped in the 1990's (Bloomberg). The opening up of imports in the European market is a great opportunity for Toyota because that enables them to put their luxury line of automobiles Lexus, up against the European BMW and Mercedes Benz. Toyota is considering the idea of introducing a beefy three-quarter-ton pickup truck into the U.S. Market (Big News). This model would combat the Ford F-250 and the heavy-duty Chevy Silverado and these two pickups typically sell for more than $30,000 (Big News). If Toyota will decide to enter the heavy-duty truck market now it could be very profitable with construction, where the use of heavy-duty trucks are needed, booming all over the United States.
Threats to the Toyota Motor Company are an everyday occurrence. A major threat to Toyota is the Hyundai motor company. On average, Hyundai usually has thirty more horsepower in their vehicles, and costs around 3000 dollars less than a comparably segmented Toyota vehicle (Amherst). In the luxury line of Lexus, they are still losing ground to BMW in sedan sales and in SUV sales (Business week). Technology increases in cars today is a major driving force in the automobile industry, and if Toyota can't keep up with its other competitors, they could quickly lose market share in sectors they are involved in. The latest trend in the U.S. market is the eco-friendly vehicle that uses less gas and even more use of electronic power (MSNBC). Toyota has introduced the Prius hybrid vehicle, but Honda also is selling a hybrid car right now and Ford, GM and DaimlerChrlsyer have all announced plans for a soon release of their hybrid vehicles (MSNBC). If the Toyota Company can gain market share before the other big three release their hybrid, this won't become much of a threat, but if the Pirus does not fit consumer's needs in the hybrid sector, they will quickly switch and try the other products on the market.
The Toyota Motor Company has a slogan that is plastered across one of its assembly plant; Yoi kangae, yoi shina (Business week). That slogan translates to "Good thinking means good products", and that sums up what Toyota is all about as a company (Business week). There combination of speed and flexibility is world class with the 30 plants they have worldwide with some of them able to produce up to eight models of on the same line (Business week). Toyota also lives by the word Kaizen which translate into continuous improvement (Financial Times). Toyota introduced TQM and Kaizen to the world with the help of Edwards Demming to take the world by surprise and focus on quality and improvement constantly instead of just the bottom line and this focus has helped the Japanese company to become one of the leaders in the auto manufacturing industry (Financial Times).
Toyota, to be as profitable in the future as they are right now needs to keep their focus on the hybrid sector when selling in the U.S. market. Toyota has also launched a joint program with it's suppliers to drastically cut the number of steps it needs to make cars and car parts. Over the past year, the company chopped out 2.6 billion dollars out of its 113 billion dollar manufacturing costs without any plant closure of layoffs (Business week). They are also putting the finishing touches on a plan to create a more flexible manufacturing system. In this new plan, plants Indonesia to Argentina will be designed to make more customized cars that fit the demand in the local markets and Toyota believes that by doing this at their plants the can save 1 billion dollars normally needed to build a new factory (Business week). These are the recommendations that the Toyota Motor Company needs to take into consideration to keep their company moving in the right direction globally.
The advantage that Toyota would have by being the leader in the hybrid car sector is unknown right now. Nobody knows for a certain fact if the "green trend" will be a large factor in the future. In the U.S. market, it appears that having a marketable hybrid car in their line up of automobiles will be a good plan for Toyota in the future. The advantage of producing automobiles customized to a certain market is a good plan to keep a competitive advantage over the competitors in the same geographic region.
The hybrid car market could be a failure in the U.S. market and others in better technology increases before Toyota's Pirus begins to turn profits for the company. If this happens, Toyota could have a huge failure with all of the R&D and advertisement they have put into their new hybrid vehicle. Toyota also has an advantage over their customers today using the TQM model of operations. If the rest of the industry begins to implement this also, and Toyota fails to keep improving, this could prove to become a disadvantage for the company.