Automotive Industry Analysis In The Us

AUTOMOTIVE INDUSTRY ANALYSIS

Submitted by Team A

Donald Bradley

Morgan Bruns

Adam Fleming

Jay Ling

Lauren Margolin

Felipe Roman

Presented to:

Prof. Alan Flury

December 5, 2005

ME 6753: Principles of Management for Engineers

Team A ii

Executive Summary

Chosen industry:

This analysis focuses on the automotive industry, specifically, large-scale manufacturers of automobiles.

The automotive industry is inherently interesting: it is massive, it is competitive, and it is expected to

undergo major restructuring in the near future due to globalization and decreasing oil reserves. The

analysis team members (we) feel qualified to perform this investigation due to our familiarity with the

industry and our education--several of us have studied and worked on problems associated with

automobile manufacturing and we are all mechanical engineering graduate students.

Analysis Methodology:

The report begins with a historical overview of the automotive industry. This is followed by an analysis

of the industry's structural characteristics using Porter's 5 Forces Model as a framework, which provides

an understanding of the automotive industry as a whole in its current state. Next, ten representative

companies of varying sizes are analyzed and compared; the chosen companies and selection criteria

follow. General Motors, Ford, and Toyota were chosen because they are the current market leaders.

DaimlerChrysler, Nissan, Volkswagen, and Honda were chosen because of their status as stable

international companies who have been in the automobile business for many years. Hyundai, Maruti

Udyog, and Shanghai Automotive Industry Corp., based in Korea, India, and China, respectively, were

chosen based on their growth potential and their status as relatively new to the industry.

These ten companies are analyzed in terms of their market position, their financial situation, and their

management strategy. Where useful, specific statistics have been incorporated into the analysis

including: market share, return on equity, return on sales, revenues, net expenses, net income, market

value added, number of brands, number of models, debt rating, and debt ratio. The examination of the

industry as a whole and of some of the major players in the industry provides a good framework within

which insightful conclusions can be derived about the current state and future of the automotive industry.

Major Findings and Conclusions:

In the conclusions section, we identify and describe attributes of successful companies including:

production efficiency, well-planned cost structures, manageable size, distributed management of brands,

attention to underserved markets, focused strategy, and well-respected brands and products. We then

move from specific company attributes to identifying key trends in the automotive industry as a whole

including: international expansion, conglomeration in mature markets, distributed competition in new

markets, increased environmental regulation, increased energy constraints, and increased operational

efficiency. Using these trends, we predict where the industry is headed and how it will evolve to meet

new challenges.

The report concludes with the recommendation section, which provides a prediction of the near-future

success of each of the analyzed companies. The outlook is not great for any of the four well-established,

Euro-American companies considered in this report: DaimlerChrysler, Ford, General Motors, and

Volkswagen. Of these companies, we conclude that DaimlerChrysler seems to be holding up the best.

The future looks much more promising for the four Asian companies with international market reach that

were studied: Honda, Hyundai, Nissan, and Toyota. Toyota stands out as being best positioned for

success in the near future, while Honda will most likely continue to be successful on a smaller scale. And

although currently successful, it is much more difficult to predict the future success of Maruti Udyog and

Shanghai Automotive Industrial Company. Both companies remain mainly focused on the Indian and

Chinese markets, respectively, and thus lack the geographical diversity that smoothes the market

performance of some of their larger competitors.

Team A iii

Table of Contents

Executive Summary .....................................................................................................................................ii

Table of Contents........................................................................................................................................iii

1. Industry Overview...............................................................................................................................1

1.1. History ........................................................................................................................................1