BUS 225 Project One - U.S. automotive manufacturing industry - introducing new industry. PDF

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U.S. automotive manufacturing industry - introducing new industry....

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BUS 225 Milestone One Executive Summary November 14, 2020 Description of Problem The U.S. automotive manufacturing industry has not been doing well this year due to the COVID-19 pandemic. I will be using qualitative data in my research but I will mainly be using quantitative data because it is statistical and is measured using numbers and values. Some examples of quantitative and qualitative data I will be using is market research reports, journals and surveys. Description of the Current U.S. Automotive Industry The market size, measured by revenue, of the Car & Automobile Manufacturing industry in the U.S. is $69.0 billion in 2020. Compared to previous years (2019 $99.0bn, 2018 $108.0bn, 2017 $126.8bn) the industry is on a steady decline. There are three automotive hub regions in the United States that are expected to gain greater concentration over the coming years, as domestic demand for new vehicles continues to trend higher. The largest share of establishments is located in the Great Lakes region, which accounts for 36.2% of locations in 2020. Some of the largest industry operators, such as General Motors Company (GM), Ford Motor Company (Ford) and Fiat Chrysler Automobiles NV, all have headquarters located in Michigan, which accounts for 15.2% of revenue alone. The second automotive hub is the West Region, accounting for 25.4% of industry establishments in 2020. Lastly there is the third automotive hub in the Southeast region, which accounts for 24.6% of industry locations in 2020. Consumers have become more environmentally conscious, so major players have focused their operations on the production of hybrid and compact cars. As a result, this product line has increased rapidly in popularity over the past five years and is set to generate the greatest share of revenue moving forward. The hybrid and electric cars market had total revenues of $30,039.0m in 2019. Current Automotive Market Trends Most vehicles purchased have been SUVs, light trucks and recently popular crossovers. SUVs (Sports Utility Vehicles) are heavier and built using a truck chassis, whereas a crossover is lighter and built on a car platform. Declining oil prices during much of the period has helped shift consumer preferences away from compact cars and sedans. Hybrid had the highest volume in the US Hybrid & Electric Cars market in 2019 which was 69.2% of the market's overall volume. In comparison, Electric had a 30.8% of the market total in 2019. The major difference between hybrid and electric vehicles is their fuel type. Hybrids have electric motors that sometimes power the car in order to delay the use of the gasoline engine and save fuel. An electric vehicle has a battery that is large enough and an electric motor that is powerful enough to deliver adequate range and performance without the need to include an engine or gas tank at all. When gas prices are high consumers tend to opt for smaller, more fuel-efficient compact cars and sedans compared with gas guzzling vans and trucks. Companies such as Toyota Motor Corporation have been positioned to benefit from this trend because of their focus on compact vehicles. The type of new models introduced during a given period can influence sales trends dramatically. The introduction of new models with innovative features and styles gives consumers the incentive to upgrade cars more regularly. Description of the New Industry Major products of the motorcycle manufacturing industry include street bikes, such as cruisers, sport bikes, standards, and touring motorcycles; off-road cycles designed for dirt and mountain terrain; scooters; and dual sport bikes designed for both road and off-road usage. Currently the industry has a

revenue of $5.8 billion. Over the next five years to 2025, industry revenue is expected to increase in response to rises in consumer confidence and employment following the reopening of the economy. IBISWorld forecasts that annual industry revenue will grow 11.0% to $6.4 billion. Declining revenue for this industry has been primarily due to faltering macroeconomic conditions as the COVID-19 (coronavirus) pandemic results in decreased per capita disposable income, employment and consumer confidence. Off-highway motorcycle sales rocketed 50.3% in the first half of 2020 compared with the same period last year, while dual-purpose motorcycle sales jumped 20.9% in the same time frame, according to the Motorcycle Industry Council Retail Sales Reporting System. On-highway motorcycles saw sales dip 9.6%, while scooter sales rose 4%. Combined with off-highway and dual, this puts total motorcycle sales in the first half of the year up 6.4% compared with 2019. Manufacturers have grasped that to increase sales, it was no longer enough to just manufacture cool new motorcycles — they needed to manufacture new motorcyclists. The biggest effort started as an afterthought from a race producer but is now an ambitious outreach program called the Ride Initiative, and it’s intended to recruit a new generation of riders using the backdrop of monster truck rallies. Current Market Trends in the New Industry According to Kevin Brown, an author for All About Motorcycle, these were the top 10 selling motorcycles of 2019: 1. Harley-Davidson Iron 1200 2. Honda CB300R 3. Triumph Bonneville Speed Twin 4. Husqvarna Svartpilen 401 5. Yamaha YZF-R3 6. Kawasaki Ninja ZX-6R 7. Can-Am Ryker 8. Moto Guzzi V85 TT 9. Honda Grom 10. BMW S1000R Motorcyclist are usually interested in the cost of running the bike. A manufacturer should stress, in its advertising, how cost effective the bike is as a mode of transport. This could be achieved by comparing the cost of fuel for the bike and the cost of fuel for a typical car, for the period of a year. Maintenance and servicing cost could also be compared. Normally, a commuter motorcycle will be able to reach many more miles per gallon than a typical car. Potential customers are also interested in purchasing a motorcycle that is modern looking and stylish. Often customers are encouraged to purchase a motorcycle if they know that it makes environmental sense. Making a journey on a motorcycle is less polluting than making the same journey in a typical car. Appendix A Explanation from Porter’s Five Forces Analysis of the New Industry Overall risk in the Motorcycle Manufacturing industry is forecast to be MEDIUM over 2021. Operators in the industry experience competition with other industry players and operators from other industries. Brand loyalty is especially strong, and therefore, competition in this segment is more likely to occur at the retail level than between different manufacturers. The industry also experiences external competition from public and private transportation industries. The larger businesses already operating in this industry, such as Harley-Davidson Inc., are more able to produce and distribute goods and services at low costs than new entrants. Companies often import components and parts from overseas and assemble them in the United States. Smaller operators that do not have a research and development unit also need to purchase designs, parts and components from third-party providers, which can have a significant effect on their expenses. 2

Appendix B Summary of Findings from Porter’s Five Forces Analysis Comparing Both Industries The Industry Analysis Handbook 2012 describes the automobile supply business as fragmented. Many suppliers rely on one or two automakers for the purchase of the majority of their products. Because of this, suppliers hold little power and are susceptible to demand and requirement of automobile manufacturers. The exception within this is the world price of steel. While it is true that the barriers to entry for auto manufacturing industry in the United States are high, the increasingly global nature of the economy and relatively recent emergence of foreign competitors with the capital, technology, management and marketing skill represent a real threat to the domestic industry. Consumers are keeping their automobiles for longer, and being more prudent and judicious when buying new.

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Appendix A

Appendix B

References Uzwyshyn, Ray. (2012). The US auto industry in 2013: Five forces to consider. 192. https://www.nytimes.com/2018/09/13/business/motorcycles-young-riders.html 4

Motorcycle Industry Council. http://mic.org/ Sean Egan. (October 2020). US INDUSTRY (NAICS) REPORT 33699A Motorcycle, Bike & Parts Manufacturing in the US Sean Egan. (October 2020). US RISK IEXPERT SUMMARIES REPORT 33699A Motorcycle, Bike & Parts Manufacturing in the US https://www.energysage.com/electric-vehicles/costs-and-benefits-evs/evs-vs-hybrids/#:~:text=A %20major%20difference%20between%20hybrid%20and%20electric%20vehicles%20is%20their%20fuel %20type.&text=Hybrids%20have%20fuel%20flexibility%2C%20however,and%20gasoline%2Dpowered %20travel%20automatically. MarketLine Industry Profile. (October 2020). Automotive Manufacturing in the United States. 0072-2606 Sean Egan. (October 2020). US INDUSTRY (NAICS) REPORT 33611A Car & Automobile Manufacturing in the US Sean Egan. (October 2020). US RISK IEXPERT SUMMARIES REPORT 33611A Car & Automobile Manufacturing in the US

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