GM and FORD Market Analysis 5
GMand FORD Market Analysis
GMand FORD Market Analysis
In2007, an economic depression hit the global market and affected manyindustries adversely. One of the hard hit is the automotive industry.General Motors and Ford being among the top players in that industrysuffered from this economic slowdown. Their reactive measures in theform of downsizing and layoffs were meant to shield them temporarilyfrom further losses. Long-term solutions would be to adjust theirmarket structure accordingly after careful analysis of the short termand long-term trends of economic depression.
Economistsexamine the market structure in a bid to define and predict consumerbehavior. This understanding is meant to help management makeinformed decisions. General Motors was once among the most successfuland well managed firms in the world. However, economic upheavals inthe global economic environment saw its market share decline fromgradually to 20% in 2009. GM has held a market share of as high as46% in the 80’s and 90’s.
Priorto 2009, GM has operated on regional fiefdoms. The fiefdoms are afairly decentralized management system where considerable powervested in regional heads. In reaction to the effects of thedepression and the continual decrease in GM’s market share, the CEOinitiated a change of strategy. The change in strategy was intendedto shift power from the regional heads to global function heads. Assuch, two executives were appointed to run worldwide operations ofCadillac and Chevrolet.
Theobjective behind this structural move is to hand responsibility forthe growth of each brand to one executive. This way, the brands areexpected to become stronger global players in an effort to regain thelost market share. The restructuring was intended to go further andbe implemented in other departments apart from car brands, such asthe manufacturing and IT sections. The overall objective of thisrestructuring was to make GM more nimble, effective and efficient.
Ford,which like GM has worldwide representation through dealerships, hasan almost similar structure. Ford uses differentiated strategy indeveloping their business plans. They design that products are meantto appeal to a wide range of consumers. Therefore, this means thatthey pick a target market and develop a marketing mix for eachsegment.
Thedegree of competition is very high. Ford, General Motors, andChrysler exist in an oligopolistic environment. They are all Americanbased, produce almost similar products and appeal to the same targetmarket. Aside from each other, Toyota, Nissan and Honda are theirbiggest competitors. These Japanese brands have penetrated the marketthat was once reserved for Ford and GM, hence the reducing marketshare. Reactive measures from include efforts to low-cost brands toappeal to youths and ladies.
Incomeand price elasticity in the automobile industry
Aggregatedemand of automobile greatly rests on cost of automobile, householdincome, perceived quality of the automobile, the consumer’s searchfor alternatives and the manufacturer’s marketing strategy. Surveysconducted on new vehicle purchasers over time have indicated that inmost occasions, market price elasticity comes below incomeelasticity. This indicates that even if one attribute that affectsdemand of automobile such as vehicle quality was removed from thelist, the effect on the estimated market elasticity would be minimal.
Essentially,observation made from reliable evidence collection suggests that itis the income elasticity of demand that dictates car designs, forcesreactive measures such as Ford’s production of low cost Ford-Fiestaand adjustments on marketing strategy such as the structural changeseffected by General Motors following the economic depression. Changesin disposable income for households is likely to affect aggregatedemand positively or negatively than design gimmicks or any otherfactor.
Mostof the models produced by General Motors and Ford border on high-end,featuring SUVs and sports cars and hybrids. The recently low costFord Fiesta is priced above USD 13, 000 which is the cheapest Fordcar. Chevrolets Sedan, Cruze, and Hatchback are the lowest GM has tooffer, and they also range between USD 12, 000 and USD 20, 000.
Withthe same amount of money, Japanese vehicles that are now readilyavailable in America offer the consumer a myriad of options to choosefrom. As depression presses consumers due to inflation, the moreconsumers will turn to more affordable cars. Even after Americarecovers fully from depression, the American automobile industry willstill need to engage sustainable strategies of sustaining theirmarket share. This is because the new entrants are not competing onthe price front alone but on vehicle design and quality as well.
Helper,Susan & Henderson, Rebecca (2014). "Management Practices,Relational Contracts, and the Decline of General Motors." Journalof Economic Perspectives,28(1): 49-72.
McCarthy,Patrick S. MarketPrice and Income Elasticities of New Vehicles Demands.Review of Economics and Statistics, Vol 78(3), p543-47. MIT Press