Competitive challenges for car makers

The Japanese are considered tough competitors, known for high productivity and adaptability. More recently, inexpensive Korean cars have entered the US and Asian markets. The beneficiaries of this competition are the car buyers, who can choose from a great variety of features such as Japanese reliability, European handling, and the comfort of the traditional American family car.

The car companies however face many problem besides competition: overcapacity in the United States and Europe; traffic congestion in metropolitan areas, which may limit the demand for cars; increasing concern about protectionism in Europe as well as in Japan; and other difficulties. Even so, there are opportunities, such as the demand for large and sporty cars in the United States. There is also an enormous expected demand for automobiles in less developed countries.

How, then, do the world’s carmakers respond to or prepare for such challengers? Each company tries to use its own strength to compete in the world market. Fiat, an Italian car company, seems to have worked out its labor problems and can now focus on beating Volkswagen, the European leader. The strength of VW, on the other hand, is its automated assembly line. Moreover, VW has cooperative ventures with over ten automakers, including the German Daimler-Benz and Porsche, Japanese Nissan, Swedish Volvo, and Spanish SEAT.

Germany has become the second largest market for Japanese cars (the largest is the United States). The strategy of Japanese automakers in Germany is similar to that in the United States: Get into the market, learn from mistakes and correct them quickly, listen to the customers and have a flexible production line to adapt to customers’ tastes. Carl Hahn, the chairman of VW, admitted that the Japanese cannot be beaten on productivity. The motto underlying a joint project with the Japanese seems to be “If you can’t beat them, join them�. Thus Volkswagen and Toyota will produce pickup trucks designed by the Japanese.

Listening to the customers was one of the keys to success of Japanese car companies in Germany. They changed their styling to accommodate European preferences, and they equipped their cars with better suspension and steering to make them suitable for the German freeways, which have no speed limit. Similarly, they identified the need for minivans and four-wheel-drive vehicles and offered models to fill those needs.

One reason many Japanese carmakers can respond quickly to changes in the market is the fact that they deal with many suppliers. It has been estimated that Toyota, for example, buys about 80% of its parts from suppliers. The company also strengthened its market position in the United States by a joint venture with General motors, producing cars in Fremont, California. Indeed, many Japanese carmakers have cooperative arrangements with foreign companies. The exception is Honda, which is quite independent. With its Japanese facilities used to its limits, Honda was one of the first foreign manufacturers (besides VW, which has closed its US plant) to establish itself in the United States. The company’s success led to the introduction of a new luxury car marketed under the Acura label.

In the past, General Motor’s full model line and its enormous size were considered strengths. But it is now realized that these characteristics can also be weakness, hindering quick adaptation to changes in the environment. GM’s vertical integration, in which the company produces some 70% of its own parts, may also contribute to its inflexibility. Although GM operated worldwide, there has been little cooperation between the US Company and its foreign subsidiaries in the past. In contrast, Ford Motor Company has become truly international, with close coordination among its design centers in the United States, England and Germany. Chrysler has enlarged its capacity through the purchase of American Motors. The company tries to stay competitive by adapting to changes in consumer demands through the use of flexible manufacturing techniques.

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