Extrapolation Methods For Theory And Practice In The US Automobile Industry

Politico-legal Factors

The environmental factor is shaping the automobile industry today and the government of the United States has taken up the task of initiating certain steps that are directed towards the lowering of the carbon emissions and the preservation of the environment. In the 1970s the Energy Policyand Conservations Act and the Vehicle Pollution and Control were introduced and implemented because of the triggering by the oil crisis at that time. The Energy Policy and Conservations Act asked that by the end of 1980 all the automobiles need to have the equal standard of 20 miles per gallon (Knittel 2013). Moreover, The Clean Air Act asked for lowering of emissions by 90% by the next six years. California legislatives in 2006 enacted a law that asked for lowering of carbon dioxide emissions by 80% by the end of 2050 (California Board 2017). A huge part of the investments made towards the development of the industry is aimed towards the development of more fuel efficient automobiles and bio fuels(Wright 2016).

The Department of Transportation have their own set of safety standards and regulations for US carmakers. The National Highway Traffic Safety Administrationprotects against risk of crashes related to motor vehicles production (Knittel 2013). Since 1960 initiatives have been taken and lots of safety related acts have been passed. Most of the acts were asking car makers to abide by safety standards and today they have to modify their vehicles to meet the standards of these acts and regulations.

Economic Factors

The world financial crisis made the market share of the three giants of the US car making industry –Ford, General Motors and Chrysler – decline, which in turn made the international companies get hold of that market share. The crisis influenced the raw material prices too, especially steel. Many people lost their jobs, reducing the income per household numbers. The cash crunch took a huge toll on the car making industry. Consumers faced difficulty in buying new cars, which in turn increased supply which exceeded the demand. After a house, cars are the second largest purchase for consumers. So a company that has openly declared bankruptcy and is seeking government bailout would receive less commitment from consumers (Stiglitz and Rosengard 2015). However, in 2015 the US carmakers saw a huge increase in the demand of cars, trucks and sport utility vehicles. The industry also saw another economic trend in the form of decline in the number of Americans owning vehicles of their own. The population has shifted to using the public transport services which is better and cost effective (Wright 2016).

Social Factors

In the car manufacturing industry, consumer acts as one of the strongest driver. With the change in customer tastes and preferences the modifications takes place in the industry (Rothermael 2015). Every car manufacturer tries to meet up to the needs and demands of the customers and make their cars more customized.

The US economy has seen many ups and downs and experienced rapid changes. These fluctuations have largely affected the income of every citizen. The unemployment rates have gone up and people have shifted more and more towards more economic options. The auto industry has been settled with the traditional owner-driver model for as long time, which is now seemingly changing with time. The US vehicle sales numbers in 2000 was 17.35m and in 2015 17.33m. Even though the recovery was considered strong the population in the intervening 15years expanded 13 percent – so not strong enough a growth (Wright 2016). Repopulation and congestion of the big US cities has hugely influenced the decline in car use, where the earning power for younger adults is comparatively lower. The proportion of people with driving licenses is unbalanced, and so is the demand that was expected from the millennial generation. The leaders of the industry however has tried their best to adapt to the changes and has taken on a whole new leadership mentality, being more open to taking risks and approaching new markets.

Technological Factors

Technological changes are fast absorbing in the world today. Companies are spending more in their R&D departments to meet the demands and needs of the customers and to become more efficient and maintain the quality of the vehicles while reducing manufacturing costs. Competition is on an all-time high as competitive car makers are attempting at innovation in providing customers with choices. At Ford, engineers are focused on the developing of self-driven cars. Quite surprisingly, they have been asked not to use company cars in the campus and instead make use of their smartphone and take shuttle bus. The traditional patterns of car ownership is breaking down, with the advent of automated cars, public transport services being provided by car making giants, smartphone car apps and low-cost all-electric vehicles (Feng and Figliozzi 2013). The auto industry is moving towardstechnological surges, aiming to transform who owns the cars and how they are driven. The popularity of public transports have made the giants experiment with these services. The ride-hailing services are another way for carmakers to earn revenue even from those who are not car owners. Using the smartphones to their advantage has become a goal for them, as these are more viable solutions to consumers who look for something with a more economic framework. Automatic cars have given rise to the idea of bringing in something that runs on electricity, to improve fuel efficiency (Al-Alawi and Bradley 2013).

Differentiation

Differentiation infers the particular association pass on advantages better than some other person. An association can fulfil differentiation by giving a stand-out or extraordinary thing. Another procedure is to pass on it speedier. A third is to grandstand in a way that accomplishes customers better. An association with a differentiation technique can charge a remarkable cost. That infers it as a general rule has a higher general income. It picks no less than one properties that various buyers in an industry see as basic, and curiously positions itself to address those issues. Associations normally fulfil differentiation with improvement, quality, or customer advantage. Advancement suggests they address comparable issues as of late (Banker, Mashruwala and Tripathy 2014). With the new and innovative car-making processes companies are venturing into, the US auto industry can find this as the best viable solution.

Economic Development

For a new innovative product launching to earn economic advantage against competition in the market, two evaluations need to be done: value creation and life cycle earning. Value creation would happen if the customers perceive themselves as being on the receiving end of values from usage of new products that exceeds the price they paid. Life cycle earning occurs when the firm earns by means of net present value and return on investment in the initial stages of the product launching. Both of them evaluate possible future cash flow with the help of development and sale of the new product (Song, Song and Parry 2014).

Premium Pricing

A premium pricing system incorporates setting the cost of a thing higher than similar things. This strategy is every so often moreover called skim pricing since it is an attempt to “skim the cream” off the most astounding purpose of the market. It is used to expand advantage in areas where customers are lively to pay more, where there are no substitutes for the thing, where there are limits to entering the market or when the seller cannot spare cash on costs by making at a high volume. Premium pricing is not overall used when there is prompt contention for a thing. Competition has a tendency to undermine expenses and provoke to poor arrangements. In this way, premium pricing is consistently a transient system. The more drawn out an association can keep its high ground, the more it can charge a premium cost. Various things start at premium expenses, yet the cost is cut once contenders appear accessible (Pantelous and Passalidou 2013).

Blue Ocean

Blue ocean system does not hope to out-play out the restriction. It expects to make the resistance immaterial by recreating industry limits. While standard indispensable systems drive associations to describe their industry correspondingly and focus on being the best inside it, blue ocean method prompts them to break out of the recognized furthest reaches that portray how they fight. Instead of saw inside these breaking points, boss need to look purposely transversely over them to make blue oceans – new and uncontested market space of new demand and high useful advancement (Kim and Mauborgne 2014).