Term Paper on "Ford and the World Automobile Industry"

Term Paper 5 pages (1285 words) Sources: 1+ Style: MLA

[EXCERPT] . . . .

Ford and the World Auto Industry

During 1965-72 the average return on equity of the world's 12 biggest auto manufacturers was about 10%; during 1993-2003 it was about 4.5%. What changes in the structure of the world auto industry have caused profitability to decline?

The structure of the world auto industry after 1993, which produced the significant decline in profitability of the U.S. industry, is globalization, in that the U.S. auto industry up to this point had enjoyed a relatively limited number of competitors in the domestic and international markets. In the early 1990s all this changed as more foreign competitors emerged and more longstanding foreign makers became stronger, selling more units nationally (imported in the to the U.S.) and internationally (in traditional U.S. export strongholds). Not only did these new competitors begin to aggressively import their smaller more efficient models to the U.S. But they also began to manufacture in the U.S., starting in the 1980s and began to actively take over the traditional geographic split between the big 3 U.S. makers, a trend of geographic change that has and will likely continue to seriously alter the market.

Klier 2)

Rubenstein 1) All this caught up with the U.S. market in profitability by the early 1990s.

Rubenstein 1) Additionally, the consumer, having now been exposed to the more efficient and smaller vehicles produced by foreign competitors for about 20 years began to demand lower priced smaller and more efficient vehicles, from the U.S. manufactures, who in turn began to produce them. These cars have an inherently lower profit margin, but respond to a new environmentally responsible demand in the U.S. As well as world, markets that was reflected in legislation as well as popular opinion.

Rubenstein 230)

2. How is structure of the world automobile industry likely to change over the next 5 years?

The structure of the world auto industry is likely to continue the trend of change and profitably may change substantially as all manufacturers seek to implement developments of new technologies that are more environmentally friendly. The technologies used to make and manufacture eco friendly cars are exceedingly research intensive and therefore expensive, yet the consumer demands prices equal to or lesser than older less efficient models. The auto industry all over the world is responding to these demands and the U.S. has to compete, despite cost to retain any dominance it once had on the market. A new development in India, the Nano, a bear bones five passenger car, toted as the world's cheapest car priced at $2,500 U.S., and produced and marketed by Tatas (an Indian auto giant) will also likely change the shape of the industry which has demanded quality and safety over cost for many years. The new car will likely seriously challenge the world auto market as consumers opt for lower price over all other issues. It is unlikely that exports of this car will occur in the very near future, as it does not meet safety and environmental standards in most nations, but the industry will be poised to watch the sales success of this vehicle to see if quantity and price will continue to be the leading market indicators over quality, luxury and safety (at a higher price). (Bidwai NP) There is a clear sense that the global auto industry, as with so many other markets will continue to seriously change as a result of globalization and ensuing market changes.

Klier 2)

3. As a result of these changes, is the industry likely to be more or less profitable over the next 5 years as compared with the last 5?

The changes in consumer demand, the global auto structure and continued global market demands will likely result in continued deterioration of profitability for the auto industry over the next five years as compared with the last five. ("Japan's Car Giants Escape"… READ MORE

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