Ford and G.M. Lose Grounds to Imports Given the information in the article, what is the structure of the U.S. auto industry? The structure of the auto industry in the United States of America has traditionally consisted of the “Big Three” auto manufactures consisting of General Motors, Ford, and Chrysler. These “Big Three” auto manufacturers produce both a range of auto products from cars to light trucks, and a have held a major share of the sales of such auto products in the United States of America. This traditional grip of the market share of the products of the auto industry has come under threat from the Japanese auto manufacturers of Toyota Motor and Honda Motor companies, which has resulted in dwindling of the market share of the “Big Three”, with particular emphasis on the car segment of the auto industry, and forcing the “Big Three” to respond in an attempt to hold on to the large market share. In spite of such efforts the Japanese auto manufacturer Toyota in October 2004 forged its way into the top three largest auto sellers in the United States of America, displacing Chrysler from this prestigious position. This event has led to the speculation that the structure of the U.S. auto industry is likely to see a change, wherein Japanese auto manufacturers are likely to rub shoulders with the traditional “Big Three” manufacturers of General Motors, Ford, and Chrysler. (1).
2. The article reports the different performance between the U.S. and Japanese auto manufacturers. What are the possible factors for the difference?
The Japanese auto manufacturers have started edging towards and past the three big American auto manufacturers in terms of market share. There are two possible key factors involved in the pull of the American customer towards Japanese auto products. The first is the Japanese auto products are more economical than the American products, which is related to the strategies employed by the Japanese in boosting the productivity of their employees and cutting manufacturing costs. In the current scenario of job insecurity, investment in the purchase of a new vehicle is bound to be conditioned by the worsening economic scenario. The second possible factor is related to the rising costs of petroleum products. Japanese cars are less of gasoline guzzlers in comparison to the American cars, and with rising fuel prices and unstable incomes the Japanese auto products are more attractive to the American customers. This is reflected in the continuing rise in the sales of Japanese auto products in spite of the response of incentives by the American auto manufacturers. (1).
3. According to the article, “incentive spending” cannot be a permanent strategy to boost auto sales. Use game theory to explain why this is the case.
Put in a nutshell, we may take the game theory as an attempt to explain the strategic actions in a competitive environment and the gains and losses that could emanate from these actions to the players in the competitive environment. The ideal environment for the American and Japanese auto manufacturers would be to sell their products at a maximum price for mutual high financial returns. In the competitive environment, the economical Japanese vehicles coupled with better mileage have made them more attractive. The response of the American auto manufacturers has been to resort to “incentive spending”. “Incentive spending” is fine as a short term strategy to reduce excess stocks, but not as a permanent marketing strategy, as it erodes the financial strength of the business enterprise indulging in it, due to reduced revenues from products sold. In the first place the current scenario of tough competition in the auto industry has resulted from a from a drop in the over all demand for auto products due to the poor economic scenario and “incentive spending” cannot be used as a long term prop by the American auto products manufacturers without driving them towards bankruptcy. Secondly, the game theory suggests that there will be a response by the opposition players, which in this case are the Japanese auto products manufactures. Their response would be a similar incentive strategy, but their incentives need be at a lower scale to match the strategy of the American auto products manufacturers. The result would be a small gain in sales volume for the American auto manufacturers for a brief period, with a high cost to their bottom line. Any increase in either the quantum of “incentive spending” or the duration of the “incentive spending” would only result in the American auto product manufacturers going bankrupt, as is the case today. (1).
1. Hakim, Danny. “Ford and G. M. Lose Ground to Imports”. 2004. The New York Times.