Ford and the World Automobile Industry
1. Changes in the structure of the auto industry
The 1965-1972 automobile industry was a low competitive environment, and as a consequence was a profitable industry. Indeed, during this period:
Industry rivalry was rather low:
The automotive market was fragmented into separate national markets and the primary concern of manufacturers was their domestic sales. As a consequence only a few competitor were disputing each market.
The supply was meeting the demand in a correct manner: the production could provide the number of vehicles bought each year, without a major over-capacity. As a consequence, fixed costs were “under control”; no manufacturer was trying to gain market share in order to spread fixed costs over sales volume.
Car models were much more differentiated that during the 2000’s. Several technologies were used in the various models available. As a consequence, models were considered as more unique by customer, hence a weaker tendency to switch between manufacturers.
Suppliers power was almost inexistent, as manufacturer were much “vertical integrated”, to reduce costs and increase flexibility.
Oil price was not a concern, with barrel under $15 during the whole period (expressed in 2006 US $). With no environmental concern, the substitution threat was very low.
Low competition in national market and high capital costs were mainly responsible for the low threat of new entrant in each local market. Moreover markets were far from being global, notably due to the transportation problems, which were on the verge to be solved : becoming global would have required at that time to completely reinvent the production process, as shipping components would have been excessively complex. Between 1972 and the beginning of the 2000’s, the world automobile market has faced a major upheaval, which primarily is due to one major phenomenon: “globalization”. The GATT and other international agreement have provided a framework for global trades, including
The 1965-1972 automobile industry was a low competitive environment, and as a consequence was a profitable industry. Indeed, during this period:
Industry rivalry was rather low:
The automotive market was fragmented into separate national markets and the primary concern of manufacturers was their domestic sales. As a consequence only a few competitor were disputing each market.
The supply was meeting the demand in a correct manner: the production could provide the number of vehicles bought each year, without a major over-capacity. As a consequence, fixed costs were “under control”; no manufacturer was trying to gain market share in order to spread fixed costs over sales volume.
Car models were much more differentiated that during the 2000’s. Several technologies were used in the various models available. As a consequence, models were considered as more unique by customer, hence a weaker tendency to switch between manufacturers.
Suppliers power was almost inexistent, as manufacturer were much “vertical integrated”, to reduce costs and increase flexibility.
Oil price was not a concern, with barrel under $15 during the whole period (expressed in 2006 US $). With no environmental concern, the substitution threat was very low.
Low competition in national market and high capital costs were mainly responsible for the low threat of new entrant in each local market. Moreover markets were far from being global, notably due to the transportation problems, which were on the verge to be solved : becoming global would have required at that time to completely reinvent the production process, as shipping components would have been excessively complex. Between 1972 and the beginning of the 2000’s, the world automobile market has faced a major upheaval, which primarily is due to one major phenomenon: “globalization”. The GATT and other international agreement have provided a framework for global trades, including