Environmental Analysis

Running head: ENVIRONMENTAL ANALYSIS

Environmental analysis

Instructer: Khalid Abdalla

University of Phoenix

MBA/501 Ð'- Forces influencing Business in the 21st Century

Week 5 Ð'- March 19, 2006

Introduction

As the Chrysler Group continues its pursuit of achieving world-class levels by 2007, it is important to understand the competitive nature of today's automotive industry and how DaimlerChrysler is performing against the competition.

Description of the business environment

To understand the automotive business environment, the reader first needs to recognize that the automotive industry is a very mature industry. The automotive industries growth only comes with the addition of new markets such as China, India, and Brazil. With the knowledge that the automotive industry is mature, we can begin to take a closer look at the business environment.

Some of the top short-term environmental issues for DaimlerChrysler include high gasoline prices, increased volatility of material prices, and the record number of new vehicle offerings.

Due to the uncertainty in Iraq, and the increased demand from the emerging economies of India and China, high gasoline prices will continue to be an issue for DaimlerChrysler and the industry as a whole. Inflation adjusted crude oil prices have raised steadily since 2002, from $20 per barrel to $52 per barrel in December 2005 (McMahon, 2006). High gasoline prices can affect such metrics as consumer confidence, material prices, and vehicle segments with low fuel economy.

Material prices, especially in the steel industry have caused many tier 1 suppliers that are under additional pressure from the OEM's to keep prices down, to file bankruptcy and/or caused suppliers huge decreases in profitability. Cold rolled steel prices have increased from about $250 per metric ton in January 2002 to over $700 per metric ton in January 2006(World Steel Dynamics, 2006). Furthermore, the high gasoline prices have put upward pressure on plastic costs as the cost of resin, which is oil-based continues to be high.

Although the increase in the number of vehicles that are offered is good for the consumer, the increase in the number of nameplates places huge financial pressures on the OEM's. "Many analysts believe this degree of new product activity is unsustainable and will further weaken some of the key industry players. The faster suppliers and OEM's can redesign their business models to support shorter life cycles and smaller production runs, the more likely they are to survive." (Korth, 2005, p. 1)

Problems into opportunities

With the increased competition, it has become necessary for established, mature companies to branch out to pursue new niche markets. This has in turn spurred on changing relationship structures, with a realization by many industry leaders that different types of alliances may be necessary to compete effectively, allowing competition to coexist alongside cooperation. This "co-opetition" has become the rule rather than the exception.

The Chrysler group recently announced this year that they would partner with Volkswagen to make minivans. Chrysler Group President and CEO Tom LaSorda said, "This is a win win deal for both Chrysler group and Volkswagen" (T. Lasorda, personal communication, February 6, 2006). Although this type of venture may seem ludicrous to some people, it is the essence of coopetition. It promotes profitability and allows manufacturers to break into new markets without the high investment cost of building a new manufacturing plant. This coopetition allows the host company to run their factories a full or near full production, increasing efficiency, productivity and profitability.

Another benefit of coopetition is in the development of alternative engines such as hybrid electric vehicles. These power plants are most likely the first step in answering the threat of continued gasoline price