The United States Automotive Industry
Discuss about the Restructuring The Global Automobile Industry.
The United State is regarded as one attractive destination of different productive and innovative companies. The favorable business environment makes the nation home for several industries forming a competitive and diverse industrial base. Some major industries of US include Aerospace, Automotive, Biopharmaceutical, Chemical, Consumer goods, Energy, Financial services and others (selectusa.gov). Companies operating in different industries face different market structure each having some distinguishing features. The paper analyzes market structure and other related features of an automotive company, Toyota using microeconomic concepts.
The automotive industry is generally identified as having an oligopolistic market structure. Oligopoly is a form of imperfectly competitive market where a large share of the industry is dominated by a few large sellers (Bolle, Tan and Zizzo). Sellers in the market sell either homogenous or differentiated product. Similarly, in the automotive industry, there are few large automotive companies enjoying a considerable market share. Some major companies in the industry include General Motors, Ford Motor Company, Toyota Motor Corporation, FCA/Chrysler Group, Nissan Motor Company, Honda Motor company and a few more. Of these, General Motors, Ford, Toyota and Chrysler group capture nearly 60% of the market share.
Figure 1: Market share of different automotive companies
(Source: statista.com)
Toyota Motors is a publicly traded company. A publicly traded company is one where the industry or business is managed by a group of owners instead of having a single or majority of owners. The company engages in producing a wide variety of automobile products. The range of products include vehicles, engine, car electronics, air-conditioning compressors and other vehicles related product. The main products of the company are thus different car models and related equipment. Additionally, the company proves financial services like retail financing, credit cards, retail leasing and insurance services (toyota-global.com). The company product is a private good. A private good is characterized as being rival and excludable (Marinovic, Skrzypacz and Varas). It is completely possible to exclude individual from using the product if the individual is unwilling to pay. One particular model purchased by one individual restricts use of the same by other individual. This makes the product rival.
The Automotive industry comprises of companies producing passengers’ vehicles, light trucks and other commercial vehicles. Varies companies are involved in operations like design, development, manufacturing, selling and marketing of motor vehicles. The industry is considered as one of the most important sectors in the world in terms of revenue (Bloomfield). In the past few years the global production of vehicles has increased significantly.
Market Structure and Oligopoly in the Automotive Industry
Figure 2: Global vehicle production
(Source: Bloomfield)
United State has a large automotive industry in world. In 2016, the production of light weight vehicles in US reached to nearly 12 million passengers vehicles. The sales of vehicles rose to 17.5 million in that year. In 1909, the automotive sector in United States was highly competitive. The automotive operation was controlled by 272 companies. By 1920 however several manufacturers exit the industry. From 1937 onwards, the big three automotive companies in US are General Motors, Ford and Chrysler capturing more than 90% of the market structure. With taking over by Japanese companies the share went down to below 70% (Guajardo, Cohen and Netessine). The market share of Toyota in United State is only one percent below the share of Chrysler
In 2017, nearly 11.2 million vehicles were produced in United States including passenger cars, light commercial vehicles, heavy trucks, buses as well as coaches. In the automobile market of US, 14.4 percent share is captured by Toyota.
Figure 3: Share of Toyota in Automobile
(Source: statista.com)
Owners of the company are Japan Trustee Services Banks (9.70%), Toyota Industries (6.73%), The Master Trust Bank of Japan (5.23%), Nippon Life (3.59%) and Denso (2.59%) (Rubenstein)
Toyota Motors set a broad set of strategy for successful operation in the global market. The company focuses on exclusive design of goods and service. The strategic decision is taken based on innovation and technological advancement. The second important area of operation is quality management. Quality is one important aspect of Toyota Production System (TPS). Other operations of the organization include location strategy, job design and human resources, supply chain management and inventory management (toyota-global.com).
The production system of Toyota Motor Corporation is known as the “lean manufacturing system” or “Just-in Time” system. The Toyota Production System (TPS) is built on two concepts, the first is termed as Jidoka which refers to the system designed in a such a way that production process stops immediate after occurrence of a problem. This helps to prevent production of defective product (Bloomfield 2017). The Just in time system in one where each process is designed to deliver only items required for the next process in a continuous flow.
The major elements of Toyota’s marketing strategy include market segmentation, targeting and positioning.
The company currently divides its operation into two groups. The first is demographic and the second one is psychographic. In demographic segmentation the company mainly target upper middle income group. Different car models offered in this segment include Land Cruiser, Camry and Parado. In the second segment, the targeted population belongs to high income class. Car models for this group include Toyota Altis, Sports model and Toyota Fortuner.
Overview of Toyota Motors
A differentiated targeting strategy is used by the company for manufacturing and selling its car models to different customer segments.
Toyota uses a positioning strategy that is based on value and users’ benefits. By this strategy the company aims to highlight different functional benefits of its own product.
Toyota uses various promotional strategies as part of their marketing strategy. The company advertise their models in different media such as newspaper, radio. television, billboards, internet, word of mouth, yellow pages and billboard (Rubenstein). The company offers a cashback to attract more customers. The cash back offers given by the company to dealer and customer enjoy it as an instant rebate. This particularly helps to attract non-cash buyers.
Toyota successfully uses its distribution channel. Toyota sales different models of vehicles through dealership. A Toyota dealer in turn depends on the parent company for designing cars according to customers need. The sales staffs are engaged in selling different models on one to one basis. In the dealership works the staff members together work as a team. The sales staffs are not only highly skilled in sales but also are efficient in collecting data, maintaining information, taking orders from customers and financing insurance (nytimes.com). The organization relies upon various dealers to provide considerable sales volume and service that helps to maintain company’s reputation.
Since its foundation day, the company has given customer services as the first priority. All division of the company follow the policy of “customer first, quality first”. The opinions received from customers are sent to Toyota directly and the company responds to these with good faith. The valuable views of customers are provided to the concerned department in order to improve company’s service in future. There are concerned team to handle to resolve the complaints launched by its customers (toyota-global.com). The Toyota vehicle owner can contact to customer services at any stage. In case, the department fails to resolve the problem it provides contact details of Alternative Dispute Resolution for the next stage of dispute management.
As discussed earlier, the company operates in an oligopolistic market structure. Marketing strategy of the company completely fits with the suggested strategies for oligopolistic firms. Firstly, the company does market segmentation (Bolle, Tan and Zizzo). Under market segmentation strategy, firms segregate the entire market into different segment, each segment targeting a specific customer groups. Toyota device demographics, psychographic and geographic segmentation.
Product differentiation is another important strategy for oligopolistic firms. The company uses strategy of low cost and differentiation to a competitive advantage in automotive sectors. The organization differentiate its product based quality, superior design and technology (Rubenstein 2017). Like oligopolistic firms the company makes significant investment for brand promotion and invest in advertisement in television, news, radio, internet and other media.
Conclusion
Toyota motors in the United States operate in an oligopolistic market structure having a market share of around 14%. The company offers a wide range of goods and services in the automotive sectors. In order to maintain its position in the market the company designs a unique marketing strategy. Market segmentation, advertising, product differentiation is some of the strategies used by the company to increase sales volume. These strategies fit perfectly in an oligopolistic market structure.
References
“Automotive Industry Spotlight | Selectusa.Gov”. Selectusa.Gov, 2018, https://www.selectusa.gov/automotive-industry-united-states. Accessed 1 May 2018.
Bloomfield, Gerald T. “The world automotive industry in transition.” Restructuring the global automobile industry. Routledge, 2017. 19-60.
Bolle, F., J. Tan, and D. Zizzo. “Vendettas. American Economic Journal Microeconomics, 6, 93-130.” Google Scholar (2014).
Facts, Motor. “Topic: Motor Vehicle Production”. Www.Statista.Com, 2018, https://www.statista.com/topics/975/motor-vehicle-production/. Accessed 1 May 2018.
Guajardo, Jose A., Morris A. Cohen, and Serguei Netessine. “Service competition and product quality in the US automobile industry.” Management Science 62.7 (2015): 1860-1877.
Maheshwari, Sapna. “Different Ads, Different Ethnicities, Same Car”. Nytimes.Com, 2018, https://www.nytimes.com/interactive/2017/10/12/business/media/toyota-camry-ads-different-ethnicities.html. Accessed 1 May 2018.
Marinovic, Ivan, Andrzej Skrzypacz, and Felipe Varas. “Dynamic Certification and Reputation for Quality” forthcoming in American Economic Journal: Microeconomics.” (2017).
Rubenstein, James M. “The impact of Japanese investment in the United States.” Restructuring the global automobile industry. Routledge, 2017. 114-142.
“Toyota motor corporation global website”. Toyota motor corporation global website, 2018, https://www.toyota-global.com/. Accessed 1 May 2018.
“U.S. Market Share of Automobile Industry | Statista”. Statista, 2018, https://www.statista.com/statistics/249375/us-market-share-of-selected-automobile-manufacturers/. Accessed 1 May 2018.
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