German Car Makers - Essay Example

 Strategic Analysis Table of contents Strategic Analysis 1 Table of contents 1 External analysis of environment 2 Integration with Porter’s five forces model 2 Buyers bargaining power 2 Intense competition among rivals 3 Supplier’s bargaining power 3 Threat of substituent 3 Threat of new entrants 4 Internal analysis 4 SWOT Analysis 5 Strengths 5 Weaknesses 6 Opportunities 6 Threats 6 Bibliography 7 External analysis of environment German car makers have ruled the world’s luxury car markets for more than 20 years. But due to massive change in type of demand car industry is considered as a one of the most volatile industry. But today there are two different types of demand in the world car market; one is fuel efficient ‘sensible motoring’ in developed countries and another is ‘cheap – cheerful’ cars in developing economies like Asian countries. This cheap and cheerful car market is huge in size. So, to grab this market every many global car makers are tying up with local car makers who are small in size. Main focus is to sell the cheap cars as basic rides since the major car market in the emerging market comprises of middle class society. But this low cost cars are not getting popular only in emerging world but even in premium market they are getting enough market. This has been the cause of worry for the big car maker like Toyota. Now even Toyota trying to come up with budget car to get hold of emerging market. Apart from budget car market premium car market is moving towards sensible motoring. German car makers have positioned themselves in the wrong sides of both these budget and premium car markets. This is the external environment in which Daimler Chrysler operates. Integration with Porter’s five forces model Buyers bargaining power Key factors and trends in this environment can be identified by using Porter’s five forces model. Here, world car market is divided into cheap and cheerful market and premium market depending on the nature of the demand of the customers. So buyers bargaining power is the key. Chrysler’s sales are not rising because today buyers have different options, each of which is equally good. Although there has been rapid improvement in terms of design and production lines, Chrysler still doesn’t have enough competitive product line as compared to its rivals. Customers have more bargaining power because they have better options from other car makers. Intense competition among rivals Competition among the car makers are intense in nature as every company is coming up with new inventions, new strategies to establish those inventions. Chrysler has to come up with new better product lines in terms of technology, features and design to stay ahead of the competition. Supplier’s bargaining power Suppliers have more bargaining power because there is more number of substitutes as all the big players are coming up with their new inventions to grab the emerging market. Suppliers are more powerful when the company is not financially sound. This is exactly the situation in case of Chrysler as it is struggling both in terms of financial condition and product lines. Company has failed to come up with new product lines, keeping the pace with market trend. Threat of substituent As every day car manufacturers are coming with a new technology, cars with existing technology are facing tough challenges to survive. Chrysler has to invest more on research and development, so that it can come up with new design and technologies to cope up with the market trend. Threat of new entrants Car market is extremely volatile and competitive, so any new entrant would be facing difficulties to establish itself, as it has to compete with the existing big car makers’ successful strategies. If today Chrysler decides to get into the small car market, which is a totally new segment for it, as it is renowned for Dodge and jeep, it is bound to face tough challenges from the existing players. On the other hand if a car manufacturing giant like Toyota decides to launch a new product line in jeep segment then that would be huge threat for Chrysler, as Toyota is an already established brand, and is in great financial condition. Internal analysis The merger between Daimler and Chrysler was supposed to be a merger of two equal powers. But Chrysler failed to make profits and Daimler now wants to break up. Almost 13000 employees including 2000 permanent have lost their jobs. In 2001 Mr. Zetsche cut one third of company’s pay roll. In 2006 company’s net earnings lowered by 40% and faced operating loss of $ 1.4 billion. Company is going to reduce production by 400,000 cars per year by 2009. Chrysler’s sales has been declined over the years although did not reduce the production. Top management is trying hard to turn around its future. Company is planning to outsource a new model to a Chinese company in order to increase the market share in overseas. Company is also trying to launch a high tech robot to produce more number of cars under one roof which will save significant amount of time and money. There is lack of synergies between Mercedes and Chrysler although they share different technologies. Mercedes lost money in the process of compensating loss of Chrysler. Zetsche was facing immense pressure to prove the merger a successful one. Moreover GM is showing its interest in Chrysler. Overall the internal situation of the company is very challenging for the incoming CEO Tom La Sorda. SWOT Analysis Strengths Although Chrysler is going through a disastrous situation in terms of sales and making profit, it has a clear vision of turning the situation around and giving return to investors. Ever since the merger has taken place between Daimler and Chrysler, latter has strong financial and technical support. This is certainly a major strength of Chrysler as it is going through a tough financial condition, it need some body to compensate its losses. Advanced production and designing technology of Mercedes would help Chrysler to make better car in the future. One of the major strength of Chrysler is its product line, which include Dodge and Jeep. Company has made major improvement in its design and production line. Company is also planning to outsource the production of a new model to an independent Chinese company. Chrysler, to turn around its future, is taking various cost cutting measures like installing new hi tek robot in its production plants. It would save time as well as money. Most importantly top management has identified all the major problems and determined to bring it back to the success path by solving those. Weaknesses Chrysler’s major weakness is that company has not been able to make profits for a while. Company’s sales is continuously decreasing although the production is been kept high. Despite of the merger with Mercedes, there is lack of proper integration between two companies. Although Mercedes shared few technologies with Chrysler, but the merger has been unable to deliver the expected result. Company’s operational inefficiency results to huge loss, job cut. Opportunities Perhaps the only ray of hope for Chrysler is its overseas market. Company has been hoping 15% sales growth in its overseas market. Moreover the small car market is growing rapidly as it is getting more and more popularity in the developing countries. Chrysler can target the huge small car market in Asia by launching a new small car product line. Threats Company’s biggest threat is its competitors who are large in numbers. As there is intense competition in the industry, each and every player is coming up with new product line, enabled with advance technologies. Companies irrespective of their size and activities from Toyota to TATA, is targeting every single opportunity. Chrysler would face tough challenge from each of these competitors. Bibliography Global Motor Industry & Daimler Chrysler, No Date. Case Study SM0338. Read More