Competitive Strategies and Government Policies

As managers or future managers, it is important to focus on the analysis of a current market situation and the competition. As managers, one has to be familiarized with the internal and external factors that can affect strategic decisions, as well as the market conditions of the industry where one works. This information analysis will help when making the right decisions for one’s company. With the information at hand, managers are at times forced to make rapid decisions because the market demands it, and it moves continuously and swiftly. One of the tendencies is technology. As managers, one needs to recognize that technology advances rapidly, and it may soon become obsolete, and companies need to be in compliance with current market conditions to stay on top of their game.

The purpose of this essay is to present a market analysis of the new product that will be introduced into our corporation, Economic Hybrid Car, "EHC". The study conducted was made by selecting one of our principal competitors in the auto industry: Ford Motor Company. We shall open our essay with a little history of the man and the product that changed the world.

History & Market

Henry Ford founded the Ford Motor Company in 1903. Although he did not invent the automobile, his vision was to provide families an affordable mode of transportation. Ford's idea was to offer urban families as a mode of transportation to go to the countryside, and provide agriculturalists and farmers with their mode to go and visit the city. This idea would help the economy on many other levels as urban consumers can now go further out from cities, and into the countryside where to produce (fruits and vegetables), and dairy products (milk, butter, and cheese), among other products were available for consumer purchase. This essentially brought the customers to the farmers, whereby the farmers reaped the profits from such visits to their farms and businesses. On the other hand, the farmers and agriculturists could visit the cities and purchase items that were not easily available in their towns and villages. A win-win situation for all in Henry Ford’s mind. As he begins to think and formulate on this idea, he encounters many issues, family problems, ethical issues, and financial matters.

Henry Ford worked day and night to make his first automobile, but forgot the smallest detail, because once built, the vehicle could not make it out of the building because they forgot to make an exit for his new machine. They had to destroy a wall to make space get the car out of the building. Henry Ford did not have luck with his first company and was fired from the second. While on his third company, he realized he needed to respond to the shareholders. His idea was to make affordable cars, and the shareholders wanted to make cars with a high price tag to make more money. This resulted in various controversies and financial issues that were not expected. The first car assembled, the Model T, was finally marketed in the United States in October of 1908.

In 1927, the era of the Model T concluded. Henry Ford did not believe that the Model T needed changes, and the Chevrolet Company took advantage by building a vehicle with the new market demands. His son, now the President, understood the market and showed Henry a drop in market share from 57% in 1923 to 34 % 1926.

Edsel Ford, Henry Ford’s son, made the necessary changes to build a new car. With his new ideas for new vehicles, he established the production assembly line. This new process makes it possible to make new cars at a speed of 90 minutes per car, whereas before the process, it took the Ford Motor Company twelve and a half hours to build. This allowed Edsel Ford to hire new workers and lower the price of the cars. More changes and adapting to new market trends helped to create a better Ford Motor Company. The company raised the hourly pay for employees from $ 2.50 per day to $ 5.00 per day. New eight-hour shifts were introduced, and a three eight-hour shifts allowed the Ford Motor Company to be an extremely successful company for its time.

The war in Europe affected the suppliers that delivered the raw materials needed for the fledgling automobile company, thus affecting production. Other problems affected the company. Henry Ford did not like the idea of having the shareholders controlling his business and his developments. He bought all shares and became sole owner of the world's largest automobile company. The Dodge brothers, Horace Elgin Dodge and John Francis Dodge, had invested in the Ford Motor Company and were suing the company for twenty million dollars. With Edsel Ford as president, Henry Ford managed to buy the Dodges’ family share. This strategy left thousands of employees out of the job for about one year. Despite the setbacks, Henry Ford managed to work in his new automobile, the Model A.

Ford’s potential customers, competitors, and its market kept evolving, but Henry Ford’s vision of providing an affordable car to everyone was in full swing. Even with market changes throughout the years, the Ford Company is still a force in the car manufacturing business in the 21st century. Understanding market opportunities in different scenarios, countries, and communities has proven to the Ford Motor Company to be vital in their success. Especially when the Ford Motor Company is working on new products, while understanding the forces of the demand, rolls out a particular product that meets market demand. Companies, such as the Ford Motor Company should understand all the issues and market opportunities especially if a particular product is a competitive one. This data goes hand in hand with profits on a long-term basis.

Ford has launched a new line of hybrid cars, just as the market has been demanding better and environmentally-safe automobiles. Prospective buyers in the United States and internationally has pushed Ford to develop this new technology. Individual market segments have been asking for luxury models, durable, lots of features, gas efficient, and affordable. Now, based on market knowledge, The Ford Motor Company has these new vehicles in the market.

This new market strategy is also undergoing by Ford’s competitors, and the company understands these threats. Competitors like Chevrolet and General Motors have also launched new hybrid models to compete in the same market. Ford should keep monitoring the hybrid market, and also, they need to keep up to date with the technological advances. To understand its market, Ford now uses social media platforms to see where the market is going and to advertise its new models.

Price elasticity refers to the variation of the quantity demanded of an individual good or service on changes in price when all conditions are kept constant (Forgang & Einolf, 2007). This means that if a particular product is inelastic, the demand for such particular product will not change even if the price changes, the market will continue to buy this good or service. On the other hand, if the product is perfectly elastic the demand will change everytime there is a change in the price of this good of service. Cars are considered to be perfectly elastic products, prospective and repeating clients have numerous alternatives when deciding to enter this market. An increase of Ford’s hybrid car by 30% means that the demand for this car will be reduced radically.

The Fusion SE Hybrid, by Ford Motor Company, is one of Ford’s latest models and is Ford’s idea to attract new clients. The ideas have proved Ford to be a success, and the car has been selling effectively in the United States, and in Mexico because of its features. Besides being a leading product, Ford is modest in utilizing new technology when designing new products. Still Ford is beating the industry with this first initial idea. One can be sure that the competition will soon follow with their versions, which will make inroads into Ford's lead in the future.

Diminishing productivity refers to as a principle which establishes that increasing one input and maintaining other inputs at similar levels will increase productivity. Additional increase in input might have limited effect or no negative effect on productivity. Increasing production does not always result in the best way to increase profitability. As an alternative, the law suggested rather than continuing to increase input, one should better stop at certain point, and increase a different idea, product, or service to increase profitability ("Law of Diminishing Marginal Productivity," 2015).

The Ford Motor Company had announced that they had the objective of producing 250,000 hybrid cars by the year 2010. Yet in 2006, they reported that they would not meet the goal because of increase in the production costs, a deficiency in the battery supplies, and drivetrain systems. As a strategy, Ford made a promise to work on the new hybrid-electric power plan in Britain, with the help of Volvo Motor Company. This new strategy will bring 100 new hybrid models to the market.

The Law of Diminishing Returns applies to capital. One has to consider the fixed quantity of money invested in a new manufacturing plant. The amount of labor and the capital employed denotes the amount of capital is used to achieve profit. Fixed assets and working capital represent the value of the total assets utilized in business. When an existing or new plant goes into production to satisfy the need for a certain good, it increases the amount of labor, and the product being manufactured will increase per unit of labor contribution to capital. When the plant reaches their production needs, an additional increase in workers will provide less return in proportion per employee ("Diminishing Return and Capital and Labor", 2007-2014).

The law of diminishing return relates to labor when the quantity of employees remains the same, and disparity in capital and land happens. If the amount of land and capital developed growths and the quantity of employees remains the same, the total product per unit of capital and land growths. If the capital and land used indicates a nonstop growth without alteration in a number of employees, an extra growth in the capital and land might increase total products. Furthermore, one observes a diminution of product per unit of capital and land.

In the last decade starting in 2009, the Ford Motor Company has decreased sales by 1,969,451 units compared to an increase of units sold in the years 2013 and 2004 of more than 243,000 units. These numbers have motivated the Ford Motor Company to depart slowly from luxury cars, SUV’s, and trucks to fuel-efficient cars such as hybrids, electrical, and ethanol cars as an alternative and a tendency market strategy. Ford’s biggest competitor is Toyota and with this strategy, Ford’s intention is to shrink the gap between the two.

The cost structure is based on the proportion of fixed cost and variable cost of business. The definition will refer to small units like products, services, product line, clients, divisions, and regions. The cost structure defines prices by using a cost base price strategy and to define areas where the cost has a potential for reduction for better control. Every cost incurred must be defined related to the object cost to define cost structure ("What Is Cost Structure", 2015).

One knows that no single buyer will affect the whole market. Productivity, technology, and all the costs involved are to be considered as important factors in the complex activities of the automobile industry as these factors may produce changes in the supply and demand. For managers, it has become vital to understand completely the behavior of costs, as this will allow managers to describe the effects of changing behavior and others factors. Fixed and variable costs have numerous variances. Fixed costs such as machinery, and building and variable costs such as labor, maintenance, raw material, replacement of machinery have caused the Ford Motor Company to develop a contraction in market share. Not covering costs in point of sales, and the inability to decrease prices have been factors in the contraction. Ford has encountered that their cost of production is higher that the industry. The labor and benefits costs have a negative impact on profit, and the Ford Motor Company has new challenges to acquire market share again.

Same structured standards for which the Ford Motor Company goes through with the variable costs, price elasticity demand, happens the same way to our company with the same type of form which in the end will not be in some great changeable structured standards due to the fact of being in the same automotive company. And as to why Ford Motor Company is to be considered as to a prediction to how our company would fluctuate in the market.

Developing a New Car

According to Christian Basu (2016), the key elements to consider for developing a new car, in the automotive industry, supply and demand play a big role. In the United States, the average price of a new car has reached $30,000 as of May 2011. Furthermore, several factors affect car demand, supply and prices must be considered. Some of these factors are:

· Economy – To illustrate an example, job losses during an economic downturn reduces considerably consumer income, and demand for automobiles decrease. In response to this trend, automobile makers begin to reduce production, and this in turn leads to downsizing and lowered labor demands. Demand for cars usually increases in a growing economy.

· Globalization – Due to the high costs of production and labor in the United States, there is a trend of importing of foreign automobiles, and relocation of manufacturing and production plants in other countries with lower labor and materials costs. This has led to a steady decline in U.S automobile sector employment.

· Compensation – The automobile industry competes with skilled labor which drives up compensation costs. During a recession when car manufacturers can negotiate favorable compensation contracts with labor unions, the opposite holds true.

· Location - According to Guia (2016), Monthly Sales in 2015 Automotive Industry of Puerto Rico, fluctuates between 58,000 to 80,000 from January till December.

· Other Factors – These factors can include new and emerging technologies, as well as unforeseen occurrences. One such natural disaster or event occurred on the March 2011 in which an earthquake in Japan disrupted many operations especially in the automotive industries. As new technologies emerge and are incorporated as part of the strategic planning activities, such as hybrids and solar powered cars, may necessitate the need for high-specialized workers.

Recommendations

Based on the analysis of Ford Company and the analysis of market automotive industry, our recommendations are as follows:

· Focus strategy in middle-class costumers

· Invest in a technology system to reduce costs

· Monitor labor costs and variable costs

· Evaluate continuously production strategies, including countries of production among others all around the world.

The effect the recommendations have with revenues and costs an example is that the product would have to be reduced at a certain price considering the above factors.

As per focusing, monitoring and evaluating, according to Yorgos Papatheodorou (2016), the automotive industry is not doing well as global average margins have tumbled from 20% in the 1920s to five percent in 2011, with many companies suffering huge monetary losses. The industry's market capitalization reflects poor profitability performance despite its sizeable earnings and employment, it only accounts for 1.6% of the stock market in Europe, and 0.6% in the U.S. There is a huge disparity between the industry's mediocre profit-making success and its gargantuan social role, share of employment and political influence. These facts mask a wide range of operational and financial performance. Let us take for example the Toyota car company, clearly the most successful large auto company to date, has a market value 15 times larger than General Motors. On the other hand, the two largest automotive companies in the U.S. are losing income, as well as an eroding market share. This cannot continue or can be sustained in the long run, and the industry must be ready to tackle head on very big changes in technology and car-making operations.

In the year 2015, according to Chris Woodward (2016), the market share for the hybrids in the automotive industry declined. Consumers have 47 choices for which they can pick out a hybrid car. Many automakers are revamping their production and operations to build hybrids so as to meet the government’s regulations for better fuel economy, and because these automotive systems are expensive due to their complexity, these higher costs are often passed on to buyers.

According to Markup Pricing (2016), our company “can have pricing strategies that call for the price to change over time”. One such strategy used by many firms is known as penetration pricing, this simply means is that the firm starts off by charging or offering their products at a low price in an attempt to develop or expand the market. The effect often leads to increase in both market share and sales volume (Investopedia, 2016). We have developed the Economic Hybrid Car, "EHC". We are considering the decision to offer the EHC at a low sales price to induce consumers to try our automobiles. Once a loyal following has developed on the product itself, we would then begin setting its price in accordance with the markup principle.

In conclusion, managers have the responsibility to keep informed of their industry market conditions. Some automakers have undergone broad market changes and have needed the government to step in to stay in business. Managers in today’s business environment must strive to bring about all efforts possible to help the companies they work for stay in business, or the companies we are developing ourselves into the businesses that can withstand the tests of time.

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