...in First Gear Publication: The Economic Times Mumbai;Date: Jul 7, 2012;Section: Global Business;Page: 6 SLOW WHEELS Why Chinese Car Brands are Stuck in First Gear Local brands make up only about 30% of their home market, the lowest proportion of any major economy ike many Chinese, Zong Zhaoxiang wishes nothing but the best for the Chinese car industry – yet he won’t be buying a Chinese car anytime soon. The 52-year-old chairman of a Shanghai chemical company, Zong said he expects Chinesebranded cars to have bright prospects. However, he loves the comfort, quality and image projected by his black Mercedes-Benz S-class, and he said he may buy another Mercedes-Benz model or a BMW in the future. “If Chinese-made cars were better designed and could demonstrate your status, more people might buy them,” Zong said. Not all of Zong’s compatriots can afford a Mercedes-Benz, of course. But most of them still prefer foreign brands to domestic ones. Volkswagen and General Motors sold the greatest number of vehicles in China in 2011, the world’s largest car market, followed by Nissan, Hyundai and Kia. All domestic car makers combined captured only about 30% of their home market, the lowest proportion of any major economy. This is not what Beijing intended. In contrast to other “strategic” industries like telecom and banking, the auto industry has been gradually opened to foreign investment over the past two decades, as Beijing allowed foreign car makers to form joint ventures with domestic...
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...Company Overview Industry Analysis Porter Five Force Model Analysis We will define BMW’s industry as the luxury and exclusive car industry which is a specific sector of the automobile industry. This market refers to automobiles that provide pleasant or desirable features beyond the necessary need. The additional value can be reflected in the equipment, performance, comfort, design, status and prestige that the product supplies. Threat of new entrants: The threat of new entrants to the luxury car industry is relatively low. In order to enter the automotive market, an enormous amount of capital is required. Besides capital, a new firm that is interested in entering the market needs to conduct in-depth research beforehand. An entering firm would need a tremendous amount of implicit and explicit knowledge in order to design and manufacture a product that has never been presented or offered before. An automobile manufacturing facility is very specific and specialized; therefore in the event of a failure or malfunction, the cost of repair is extensive. Brand equity is an additional barrier to entry. Exclusive high quality luxury car brands have established extremely high brand equity- value over time. This is one of the main reasons why the public is willing to pay premium price for it. Although the barriers to this exclusive market are substantial, there are various ways around this obstacle. Companies who are well established in the automobile sector may enter the new...
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...January 18, 1998. After receiving approval from a number of groups, (Refer Exhibit I), the merger was completed on November 12, 1998. The merger resulted in a large automobile company, ranked third5 in the world in terms of revenues, market capitalization and earnings, and fifth6 in the number of units (passenger-cars and commercial vehicles combined) sold. DCX generated revenues of $155.3 billion and sold 4 million cars and trucks in 1998. Schrempp and Eaton jointly led the merged entity, as co-chairmen and co-CEOs. | | DCX sources were confident that the new company was well poised to exploit the growth opportunities offered by the global automotive market in terms of geographical and product segment coverage. (Refer Exhibit II for Daimler Benz and Chrysler's product ranges) | However, analysts felt that to make the merger a success, several important issues needed to be addressed. The most significant of these was organizational culture. German and American styles of management differed sharply. A cultural clash would be a major hurdle to the realization of the synergies identified before the merger. To minimize this clash of cultures, Schrempp decided to allow both groups to maintain their existing cultures. The former Chrysler group was given autonomy to manufacture mass-market cars and trucks, while the Germans continued to build luxury Mercedes. However, analysts felt that this strategy wouldn't last long. When Chrysler performed badly in...
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...Introduction A car tariff is a fee which is imposed on imported vehicles. The tariff can be assessed in a number of ways, depending on the policies of the nation instituting the tariff, and it is usually based on a percentage of the declared value of the vehicles. Tariff rates for cars, trucks, and other types of vehicles are usually different, with a schedule being established and periodically reevaluated to determine whether or not the car tariff is appropriate in the current market. Like other types of tariffs, a car tariff is designed to promote the welfare of domestic industries. The car industry may not be able to compete with cheaper imports, but once tariffs are assessed, they level the playing field slightly, giving domestic cars an edge in the marketplace. Car tariffs can also sometimes be used to penalize car importers who bring in inefficient products, with the car tariff being reduced for vehicles with low emissions or high fuel efficiency. Importers often criticize car tariffs because they add to the cost of doing business, and some argue that consumers have their freedom of choice restricted by tariffs. Some nations have responded to such criticism by abolishing or lowering their car tariffs to make the business climate friendlier to importers, while others have upheld high tariffs, arguing that their domestic automobile industries need the protection provided by tariffs. Cars from foreign manufacturers can be less expensive for a variety of reasons, including...
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...I m going to tell how the automobile has done a complete turn around. Starting with the steam engine powered carriage that was developed in 1769. Then moving to 1832 when the first electric carriage was developed. In 1885 the first gasoline powered three wheel vehicle was developed by Karl Friedrich Benz. This led to Gottilieb Wilhelm Daimler building the first four wheel powered car in 1886. These two great minds later combined in 1926 to form Mercedes-Benz corporation. 1913 was a big advancement in the car being produced. Henry Ford produced the Model T on the first assembly line. He was not only responsible for the assembly line but also for the five day eight hour a day work week . His famous saying was “Any customer can have a car painted any color that he wants as long as it is black”. The reason for black only cars was because it was easier to make on the assembly line. Fast forward to 1996 GM developed the EV1 total electrical vehicle, other car makers like Toyota, Ford got on board to build electrical cars. This was done as a test program in California. California built charging stations throughout the state. This program was scraped after three years of testing, because the battery production companies where sold to Chevron Oil Company. Which was a conflict in gasoline production. In 1999 Honda built the insight hybrid car. This car got 61mpg in the city and 70mpg on the highway. The insight was built for 7 years, and later brought back into production in...
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...Porsche Porsche has perfectly positioned itself in a niche market. The brand—for which, as it was famously phrased in the movie Risky Business, "there is no substitute"—has just about everything going for it, even as the wider world of personal mobility crumbles. Its owner base is passionate as well as devoted and the automotive press routinely adores the brand. Due to its compact portfolio of four vehicles, all engineered according to the unimpeachable values of high performance, Porsche would seemingly be impervious to downturns. Yet, the company has seen time periods with drastic decrease in sales. To rebuild its momentum, Porsche has followed other luxury car companies, including Mercedes and Audi, and explored ways to expand its market by introducing different lines and less expensive models. With its impeccable reputation as the quintessential luxury sports car, this can be hazardous territory for the company, as some fans believe it will lead to the cheapening of the brand and ultimately force loyal patrons to find a substitute. Track Work The Porsche legacy was founded well before the company was created in 1931 by Austrian engineer Ferdinand Porsche. Ferdinand Porsche received international fame when he introduced his Lohner-Porsche electric car at the 1900 World Exhibition in Paris. The Lohner-Porsche was highly efficient and more expensive than similar cars with combustible engines, starting Porsche’s brand of luxury vehicles. Additionally, in...
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...Executive Summary The Smart car has been around for over 10 years; it is currently being manufactured by Mercedes-Benz. The car is incredibly small; the two-person model is only 2.5 meters long from front to back (half a meter shorter than a Mini Cooper). The doors make up three quarters of the car's length. It's almost as wide as it is tall. The Smart car is obviously very easy to park. The plastic body panels on the car are replaceable. You can change them after an accident, or whenever you want, even with a different colour. The seats apparently are quite comfortable, with sufficient legroom, and headroom is adequate for most passengers thanks to the car's tall stance. Assessment and Diagnosis In the late 1980s, SMH (makers of the Swatch brand of watches) CEO Nicolas Hayek began developing an idea for a new car using the same type of manufacturing strategies and personalization features used to popularize Swatch watches. He believed that the automotive industry had ignored a sector of potential customers who wanted a small and stylish city car. This idea soon became known as the "Swatchmobile". Hayek's private company Hayek Engineering AG began designing the new car for SMH, with seating for two and a hybrid drive train. Analysis of Change Strategy: Nicolas Hayek, the CEO used a transformational Change strategy which involves radically rethinking and redesigning a major business process with the objective of achieving large-scale improvements in overall business...
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...CASE STUDY 3 CASE 10-2 The Smart Car by B. Renea Kosino 1. What is Smart’s competitive advantage? Its brand image? The Smart Car, made by DaimlerChrysler, offers a cost focus and focused differentiation. It brand image is very narrowly focused. Smart appeals to single people (or families with no children), who primarily do city driving and want a no frills automobile that is economical and eco-friendly. Some advantages that Smart brings to the table are as follows. First, the vehicle has an exceptional look that appeal to those who want to be unique. Next, this very small, but roomy vehicle makes city driving and tight parking easier. Subsequently, crash testing and safety experts consider Smart as an extremely safe vehicle. Moreover, its models are very fuel efficient at 35 mpg on average. In addition, this automobile’s low exhaust emissions earned an Ultra Low Emission Vehicle (ULEV) classification. These condition were essential in Smart being one of five automakers to receive Greenopia USA’s highest environmental rating (see attach1). Finally, the vehicle is very economical with the most basic vehicle starting at $12,000. 2. Assess the U.S. market potential for the Smart. Do you think the car will be a success? Why or why not? Smart Car is economical, unique, and eco-friendly. Generation Y (Gen Y) is a target market, which should be pursued because Gen Y’s, those born from 1977 to 1994 (1980-1995, depending on who you ask), is demographically...
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...This year, Mercedes Benz is offering a new four-door sedan known as the CLA. They released commercials targeted for Super Bowl audiences that really caught my attention. Neither commercial is about the car's performance, ride comfort, or its gas mileage. Initially, I could not understand my attraction to the first commercial but then it hit me… nostalgia. It was hard to put my finger on because that nostalgia lay wrapped in a superficial layer of modernity. I found it entertaining and found that it conveyed a message to me. As for the second commercial, I was left a little confused and not very impressed. For the advertisers to hit the mark so clearly on one commercial but miss the mark so widely on the second, did not make sense. The commercial titled "Soul" begins in the timeworn French Quarter café, The Napoleon House, which according to their website got its name when, "Nicholas Girod, was mayor of New Orleans from 1812 to 1815. He offered his residence to Napoleon in 1821 as a refuge during his exile." just before his death in 1821, "Napoleon never made it, but the name stuck"(Unknown 2013). The dining room is filled with the primitive, Candomblé rhythm of the Rolling Stones' "Sympathy for the Devil", pouring in torrents from the early 1950s Seeburg Select-O-Matic jukebox, as the actor peers out a window admiring a billboard of the new Mercedes Benz CLA. Even though the main actor in the first commercial is a young man, I believe that it becomes part of the...
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...Assignment 6: PRICING a) Computation of Economic Value of an offering Mercedes Benz is launching its luxury SUV (called the CDL class) in a market dominated by Lexus GL. The CDL class uses diesel and obtains 25 miles per gallon. The Lexus model, priced at $48000, uses premium gasolene and obtains 20 miles per gallon. Both the models need to be serviced annually but the CDL being a diesel engine requires annual service that is costlier by $100. The life of a diesel engine is typically longer – hence the residual value of a 10 year old CDL is estimated to be $1600 higher than the Lexus. Assume (i) the average cost of premium gasolene to be $3.00 per gallon (ii) the average cost of diesel to be $3.25 per gallon (ii) the average customer drives 12000 miles per year and (iii) there is no time discount. What should be the price of the CDL such that the economic value of Benz CDL over Lexus GL (during a 10 year use horizon by a customer) is completely appropriated by Mercedes Benz? The economic value of CDL: Price of substitute=48000 Cost saving=(12000/20*3-12000/25*3.25-100)=140 Revenue enhancing=residual value=1600+residual value of GL Use horizon=10 EV of CDL=48000+140*10+1600+residual value of GL=51000+residual value of GL The economic value of GL: Price of substitute=X Cost saving=(12000/25*3.25-12000/20*3+100)=-140 Revenue enhancing=residual value=residual value of GL Use horizon=10 EV of GL=X+(-140)*10+ residual value of GL=X-1400+residual value of GL To make...
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...Degree of Rivalry Despite the high concentration ratios seen in the U.S. market (see Appendix D), which typically signify that a lesser degree of competition is seen in the industry, rivalry in the U.S. and the global automotive industry is intense. Clearly, the concentration ratios do not tell the whole story. The automotive industry in the U.S. is no longer the playground of the Big 3 (GM, Ford, and Daimler Chrysler); global companies compete in the U.S. market, while U.S. companies have globalized themselves. In the 1980s, the Japanese car makers Honda and Toyota entered a fairly disciplined U.S. market and have been very focused in growing their shares of the market. The great diversity of rivals in terms of cultures and associated philosophies has intensified rivalry in the industry. Market growth is slow in the established markets of the U.S. and Western Europe, and companies must fight fiercely to eke out gains or prevent losses in market share. However, growth is potentially huge in the rapidly industrializing nations of China and India; in these booming markets, companies could take advantage of the opportunities to reap handsome rewards. The degree of rivalry in the automotive industry is further heightened by high fixed costs associated with manufacturing cars and trucks and the low switching costs for consumers when buying different makes and models. Threat of Substitutes The threat of substitutes to the automotive industry is...
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...It is important that a business understand the factors to business growth and improving customer satisfaction is the key. Many organizations should always look into developing a research study to continue to improve its customer satisfaction. The research study uses feedback from the focus group and customer satisfaction surveys. The purpose of the survey is to close the gap between the organization and its consumers. An important question to ask is “How satisfied are the customers?” The business has to understand what is important to the consumer. The research study focuses on who, what, when, and where. Improving customer service sends a message to the customer of respect and appreciation of his or her business, and the business it focused on staying abreast to his or her needs. ABC auto manufacturer has been successful for the past 80 years. Unfortunately, as the years progressed the average age of its customers has been more than 50 since 1990, and logic dictates that the consumer base organically will shrink. ABC autos are high-end with an average cost in excess of $50,000. ABC auto Management has decided the target market for this automobile will be adults in the age range of 35 to 45 years if ABC will survive. The next step for ABC is to create a business research plan to accomplish its goals. Management needs to formulate a plan to attract customers in the age range of 35 to 50 to expand its customer basis and increase profits....
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...1.) In term of comparative advantage, Korea has a high saving rate, and also abundance of production factors- cost-effective labor, knowledge workers, high technology and capital. In term of competitive advantage, Hyundai have various production plant and regional headquarters at different part of the world that contributes to convenient access. Besides that, Hyundai also employs inexpensive labor and sources inputs from low cost suppliers as well as entering various collaborative ventures to cooperate that allows Hyundai to access to foreign partners’ knowledge. Hyundai has superior cost advantages in acquisition of high quality inputs. 2.) Korea’s abundance of production factors such as cost effective labor, knowledge workers, high technology and capital used intensively to produce car allow them to gain the specific advantage in order to produce and exports car. The use of low cost labor and inputs allow Hyundai to remain competitive and acquire superior cost advantages. 3.) Factor conditions: The abundance of cost effective and knowledge workers in Korea gives Hyundai a competitive advantage in the production of cars. Related and Supporting Industries: Hyundai partnered with Daimler Chrysler to develop new technologies and improve supply chain management that allows Hyundai to have superior cost advantages in the acquisition of high-quality inputs. Demand Conditions at home: Korean consumers are very demanding which lead to intense rivalry in the domestic car industry...
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...of the changes observed within the two dynamic countries. Germany is one of the world leaders in the automotive industry, and is the biggest exporter within the EU for automotive vehicles by far. With a vast interest in the high quality products and excellent services that the Germany car industry has to offer they are benefiting from impressive figures as shown (Mccarthy, 2013) “Germany is the chief exporter by some distance. Europe’s economic powerhouse exported an impressive $245.4 billion worth of automobiles in 2011. During the same year, Germany reported $104.1 billion of vehicle imports.” This is bringing great amounts of wealth into the nation. By having seven of the world’s most popular brands (Audi, BMW, Ford Germany, Mercedes-Benz, Opel, Porsche, and Volkswagen) Germany are able to offer a vast range of luxury vehicles which are in great demand; this is allowing Germany to have massive growth within the car industry which shows no sign of decreasing. Within the 2009 financial crisis many sectors failed to make a profit or match sales from the previous years. But with Germany offering scrapping programs that allowed customers to scrap old cars with up to $3,000 euros towards getting a...
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...Explaining technical change can be done by using (evolutionary) economic arguments such as path dependency, lock in and paradigms. However I argue that for a better, more enriched, picture of technical change quantitative data falls short and qualitative sources are essential for understanding technical change. The actual practices of producers but also of consumers play an important role in the explanation of technical variety. Since the invention of the first automobile in 1885, there have been a number of additions and improvements. The automobile is a technology that has changed society dramatically over the last century. But not only society changed, the technology of the motorcar itself has changed significantly. Few parts of our society have seen advancements as incredible as those seen in the automotive market during the past decade. Think about it. Ten years ago, automakers were touting the number of cup holders in the cabin. Today, automakers are boasting about hands-free mobile communication technologies, fuel economy you couldn’t have dreamed about 10 years ago and life-saving technologies that help drivers avoid accidents. Today, cars are a lot safer, reliable, and more entertaining than they once were. Could you imagine being in a car that didn't have brakes or indicators? There would be madness and chaos on the roads. No other area of automotive technology has advanced more than safety. In 2001, the average car had at least two airbags. Today, vehicles have at...
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