The DaimlerChrysler Merger (A): Gaining Global Competitiveness Question 1: What was the situation at Daimler and what was the situation at Chrysler before the merger? The situation at Daimler was difficult before the merger because Daimler experienced tremendous losses in the beginning of 1990s. Starting from 1995 when the new CEO came in place some changes were instantly done, for example, unprofitable business units were either closed, restructured or sold.
Even though the new CEO had in mind how to turn the company around, the Japanese rivals competed really well by offering comparable products in the car industry at cheaper prices. In general, the auto industry was shifting, basically many of the luxury car brand merged with other bigger car companies around the world, and therefore, the number of luxury car brands expanded which also had a positive impact on the economy overall.
Chrysler, on the other hand, also experienced a tough period during those two decades; the company was near the bankruptcy twice. Nonetheless, the firm shifted its focus in the direction of cars and light trucks. In the 1990s, Chrysler made significant shifts which ultimately led the company toward a stronger competitor in the car industry. Chrysler shifted its focus and headed for the cost-effective approach, thus the firm was recognized to be the leanest car manufacturer when compared with the Big 3.
Although Chrysler was recognized for its cost-effective approach, its position in the automobile industry was declining once it attempted to grow the firm outside NAFTA. Question 2: How does the external macro-environment look like for the automotive passenger car industry? In order to elaborate on this question regarding the automotive passenger car industry, the PESTLE forces analysis will be used to go over the key factors.
Political factors regarding the car industry were stable when the merger occurred, and therefore, there was no political uncertainty which would have adversely impacted the automobile companies. Thus, companies competed exclusively on the products and items they have produced.
Economic factors during the mergers period contributed enormously to the accomplishments of these firms. For example, in the 1970s the automobile manufacturers produced fuel-efficient vehicles due to the fact that the oil crises occurred. Also, some of the developing countries in Asia and Latin America experienced a large growth which helped the automobile manufacturing industry in those countries to keep expanding.
However, economic hardships because of high inflation, competitive pressure and currency volatility have had a negative influence for the firms in the automobile industry. Though, the production costs dropped because of the low cost of raw materials which were established by the suppliers during that period.
Socio-Cultural factors of that period did not really influence the car industry market and did not have an effect on the forthcoming of the car industry. However, one can say that an increase of the world’s population has had a socio-cultural impact which ultimately expanded the number of vehicles produced and purchased.
Technological factors probably had the most impact on the automobile manufacturing market and industry. The technological innovation in the last 20 years has constructed the car industry because of the development in the production techniques, which ultimately impacted the production costs as well as reduced the workforce.
The reason some of the big players in the car industry have been successful is due to the fact that they were investing enormous amounts of capital in Research and Development (R & D). Also, experts and government agencies have applied the technological and computer systems to minimize pollution levels and to improve the flow of traffic on the road.
Environmental factors were also significant during this period regarding the accomplishments of these firms because the world has become more aware of the air pollution and the adverse influence that the car emissions have had on the environment. Car manufactures began implementing strategies in order to shift the production process so that vehicles run more efficiently and have less negative influence on the environment.
Therefore, with the technological innovation and the environmental changes we experience on the daily basis, the car manufacturers also tend to adjust their production so that customers and environmental agencies receive the best quality and performance. Question 3: How does it look like for the micro environment (5 forces)? Bargaining power of suppliers
In order to survive and cope with the costs and changing market demands, car manufacturers became less involved in the manufacturing process itself and passed responsibility on suppliers. This way, manufacturers can have more time to deal with “car-related services” that go along with the sale of the sale of the car. In order to increase sales and grow, companies started operating globally.
The suppliers had to move and enter markets wherever the manufacturer went, and be located near their plants. However, the trend in this industry is to have a small number of large suppliers, who are able to produce a wide range of parts (ex. headlights, fuel and water pumps, dashboard, etc), instead of having many smaller suppliers who would be specialized in a small number of parts and produce only that (ex. one supplier only produces fog lights).
In conclusion, we can say that bargaining power of suppliers is HIGH, which makes this industry less attractive. Bargaining power of customers At first look we would think that buyers have no bargaining power, and although this is true to certain extent, it has to be noted that brand loyalty is falling year to year. There are many manufacturers who offer very similar cars, with similar features and quality that buyers can just turn to someone else to buy.
The price sensitivity is thus probably the most influential factor. In order to solve this problem, car manufacturers came out with different types of loans and leases for customers with long maturity extending up to 10 years or more. Buyers on the other hand have little to no influence over the price they pay for their cars. They can take out loans or leases and negotiate the interest there, but the price of the car will stay the same. Threat of new entrants
It is very difficult to enter the car manufacturing industry. Not only that it requires a very high initial investment, but because of the price of the product, customers are more comfortable buying a car from a well-established manufacturer than from a new company.
So, the brand image is very important to customers, which might take years to develop. Also, continuous investments need to made in R&D in order to stay competitive and comply with the environmental emissions standards (i.e. euro 5 emission standard in Europe). Distribution in the car industry is done through franchises, and it would be very difficult to get people to buy a car franchise with no established name. Threat of substitute products
In recent years, we often hear in media about possible car substitutes. One of the major substitutes is definitely public transportation. Busses, metros, trams, and airplanes are becoming preferred types of transportation. Motorcycles and, more environmentally friendly, bicycles are also substitutes for a car. However, none of the substitutes offer the same flexibility and comfort as a car does. Rivalry among competing firms in the industry
Even though there are quite a few auto brands on the market, only a few are global players. Car manufacturers kept their prices high before (no price wars), but due to the economic crisis they started offering long term financing, extended warranties, and other additional services in order to attract more customers. Now, we can say that the competition is intensifying, but it in my opinion governments should intervene and encourage the competition, which would result in lower car prices.