Macro Environment of Auto Sector

The car industry environment is very complex due to the large number of product markets, buyers, suppliers and customers, which spread across the globe. As such, it has often been described as “the industry of all industries”. There are various forces that influence this environment. Hence, this report analyzes some of the political, economic, socio-cultural and technological trends, key to understanding their impact on the industry, with particular reference to the Western European market.

First, the macro environment is analysed to point out some of the major impacts in the entire industry, revealing political and technological forces to be the driving forces of the industry. This is then followed by a competitive analysis of segments in the industry divided on the basis of various strategic groups. Such segmentation helps in grouping some of the companies and assessing the impact of key variables common in that segment. It is revealed that brand perception is a key mobility barrier that helps companies maintain their competitive advantage in each of the segments, by reducing threat of new entrants.

Following is the detailed analysis based on the above dimensions. Macro Environmental Forces on the Car Industry Particularly three trends can be identified to have major impact on strategy formulation for the 21st century in the industry. First, there has been greater importance by governments of various countries to balance their ecological and economic objectives as compared to the past. Secondly, the economic downturn coupled with unemployment has lead to a reduced consumer confidence.

Lastly, the technological innovation has been quite rapid and extensive in the last decade. There are 6 types of macro environment variables which are. . . 1. economic 2. legal/political 3. social/culture 4. natural resources 5. internstional 6. technology The following paragraphs give a more detailed analysis of these trends. Political Forces: The changes in government policies and legislation in certain western European countries will have significant impact on the level of demand in the industry.

Today marketers face an increased challenge in analyzing the marketing environment as more and more external forces are shaping and changing the buying and spending habits of consumers. Some variables are uncontrollable such as the distribution of income in a country or a law that a government has passed, where the best approach is analyzing and understanding these shifts, and then adapting marketing strategies based on the data found. Other external forces can be controlled, for instance, a company can stay on top of the newest technology or create a marketing strategy that is environmentally friendly and sustainable.

Thus a company’s marketing opportunities versus a company’s marketing threats is dependent upon how proactive a company is in researching the microenvironment, and how well they implement these changes into their marketing strategy. The macroenvironment consists of larger societal forces that affect the microenvironment (the company, suppliers, market intermediaries, customer markets, competitors and publics) demographically, economically, naturally, technologically, politically and culturally.

We can zero in on the auto industry, because, although it has always been a affected by external forces. Today, more than ever, marketers for this industry must adapt to the increasingly nontraditional American “family” dynamics, tight budgets, the rising price of crude oil, regulations in regards to safety standards set by lawmakers and government officials, a wave of new technology that seems to come just as quickly as they go, and even culturally as people rethink their values in regards to the environment.

Changing demographics, :The study of human population in terms of size, density, location, age, gender race, and occupation, of the United States has spawned some interesting data for market research in the auto industry. As the American family becomes increasingly unconventional due to divorce rates, couples who don’t want children, and people who just see the costs of marriage outweighing the benefits; marketers can no longer assume that if a 40 year old women walks into an establishment that she will want a minivan for her kids. Instead, she may be working and might not have children and is keen to buying a sports car.

Another interesting shifting demographic of today’s American society is that more women than ever are working and more men than ever are staying home. Could a father possibly drive a minivan? Well, if you ask Toyota about it’s Sienna SE, they will smile and say absolutely; they won’t call it a minivan; but a “swagger wagon. ” Seriously, just look at this commercial- Although I am not quite sure how I feel about a father rapping in a minivan, it just goes to show that our changing demographics affects the way dealers relate to their consumers changing tastes and lifestyle situations.

Another change that has had a grave impact on the auto industry is the country’s current economic environment, or economic factors that affect consumer purchasing power and spending habits. In lieu of the Great Recession, people are spending less and demanding more value; which generally does not bode well considering how large of a purchase a car can be. However, dealers and automakers can minimize this threat by increasing their market offerings. The textbook states, Ford, has expanded its line of cars to include a price for every budget, however each car still delivers great value.

When one logs onto Ford. com they see that Ford also offers environmentally friendly, or hybrid cars, and at a somewhat reasonable price; with the Ford Fusion SE starting at around $28,000 for those who are more environmentally conscious. Ford even offers consumers a build and price model, where the consumer can add or take away features and determine the type of car and its features based on their budgets. By allowing consumers to pick a car, choose the car’s features and even dictate the car’s price they are more apt to check out Ford when purchasing a car.

Brands like Ford, truly understand the impact of the recession on consumer wallets, and have responded favorably in this uncertain economic time, which ultimately, reduces the threat of limited consumer resources, or money. However if a firm ignores this challenge, they can expect to see their demise. The natural environment or natural resources that are needed as inputs by marketers or that are affected by marketing activities; too has an effect on the auto industry. With tensions rising in the Middle East and a finite amount of crude oil; gas prices have gone up dramatically, to about $90 a barrel.

Besides the fact this is scary, it has completely altered the way cars are manufactured and built. While, in the free age of spending, consumers were interested in buying the biggest cars possible like the hummer , once crude oil rose; there were a lot more hummers on the market at some pretty low price points. The buyer’s reaction to rising gas prices was simple; “I want a car that gives me more mileage per gallon. ” In turn, companies completely changed their business models to focus on offering consumers more fuel efficient cars.

Today, marketers for almost any auto company focus on fuel efficiency and value when promoting their cars to their target markets. This along with tight economic budgets of consumers is probably the biggest obstacle for the auto-industry; however if they are responded to properly companies and marketers can reduce their risk and create opportunity. Safety standards and regulations: are passed through the political environment; or laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society.

The United States is notorious for implementing laws that may limit production efficiency because by meeting every standard perfectly takes time. Cars are recalled in the US much more than in other countries because of these regulations, making it extremely costly if a regulation is ignored- even worse if the regulation is ignored and a lawsuit arises. This is good for the consumer because it ensures companies are only allowing the safest and most reliable cars on the road; however it can pose a serious challenge, and even shut down a firm if this isn’t followed.

Thus, marketers often promote the safety of the cars in their market offerings; sometimes they even use technology to make safety regulations an opportunity rather than a threat. Technological changes : or forces that create new technologies, creating new product and market opportunities has the biggest positive impact on the auto industry. As mentioned before auto companies are using technology to increase the safety and performance of their vehicles, for instance, Ford offers consumers advanced safety protection; and it does a whole lot more than a seatbelt.

With Ford’s technology a Ford Escape, that is going too fast around a curve will automatically slow down. Auto makers also offer live camera feed on a GPS monitor screen when a car is in reverse. GPS’s, Bluetooth and XM radio are other features that consumers pay for, especially the millennium generation, as it is the most technologically advanced generation in the US- and no doubt will hold a big stake in the auto industry one day. Marketers, today, focus on upselling these high tech gadgets; but they also need to be aware that these gadgets are replaced by higher tech gadgets and new innovations come, just as quickly as they go.

Cultural environment,: Lastly the our institutions and other forces that affect society’s basic values, perception, preferences, and behaviors, too has affected the auto industry, specifically consumer shift toward more environmentally friendly vehicles. Although the cost is very high at the moment for hybrid and electronic cars, many people will consider buying them in the future as prices depreciate. This is not only due to the high price of crude oil, but because people want to affect the earth positively.

This could be a great opportunity for marketers in the future, and many companies, are already offering hybrid cars anticipating their increased demand. External factors :can positively affect the auto industry in many ways, but they can also pose serious threats. The most successful automobile makers are aware that these macroeconomic shifts and changes affect their products and consumers directly; and proactively create marketing strategies and companywide strategies to best position themselves in a volatile and increasingly challenging marketplace.