The automotive industry is a globalized industry with consumers worldwide. Ford, GM, and Chrysler are referred to as the “Big 3” / “Detroit 3” and are the largest automakers in the US and Canada. The “Big 3” are distinguished by their business model as the majority of their operations are unionized which results in higher labor costs than other multinational automakers, including those with plants in North America. There are numerous models between the automotive companies in the industry such gasoline-fueled cars, bio-fueled cars, electric cars, hybrid cars, diesel-fueled cars, and ethanol-powered cars, which slightly distinguishes the companies from one another. Ultimately, the challenges to this industry are the drive for lower cost structure, fuel efficient demand, product differentiation, and globalization. Drive to Lower Cost Structure As it is the goal of any corporation to maximize profit, in the short run, in order to decrease costs, many auto manufacturers have been moving away from Detroit to China, Mexico, and Central Europe due to high costs of labor in capital in the US. However, the US might see a resurgence of manufacturing due to the dollar versus other currencies in the short term, though, that could change as the value of the currencies move. In order to prevent shut downs, companies must ensure they are operating efficiently by setting their prices above the minimum average variable cost. It can be resourceful for automakers such as the “Big 3” to operate in locations in the US where unions are not as prevalent, such as the South. Another factor in operating efficiently in the automotive industry is wage rates. Compared to the labor cost in countries such as Japan, domestic automakers cannot compete because of the high US cost of labor. The cost per hour for a US employee is significantly higher than those in Asia, and when US automakers can find a way to decrease their costs, they’ll be far more competitive. Moving manufacturing to the South and retiring models that do not sell are changes automakers, such as the “Big 3”, can make to help decrease the hourly cost per employee. Evolution of Fuel Efficient Demand Just as labor rates have a correlation to profitability, price correlates to demand. According to the economic theory of complement goods, “two goods are complements if an increase in the price of one of the goods causes consumers to demand less of the other good, all other things constant.” In the automobile industry, gasoline and automobiles are complement goods. Due in large part to rising oil prices, a key demand driver, consumer demand for automobiles declined dramatically in 2008. As a result, automakers faced historically low sales, resulting in a dramatic reduction in revenues. Not only did the overall sales of vehicles decline, but Detroit automakers saw a huge dip in sales in their SUV and light truck segment as consumers sought out more fuel efficient options.

1. Automotive Industry
Tuesday, November 27, 2012
Kara Cenni - kara.cenni@tntp.org
Richard Chan – richchan@rutgers.edu
Jenny Gasior - jenny.gasior@gmail.com
Liliana Snegur - liliana.snegur@gmail.com

2. Introduction
 The “Big 3”: GM, Ford, Chrysler
 Consumers
 Products:
 Gasoline, Bio-Fueled, Electric, Hybrid, Diesel, Ethanol
 4 major impacts to the industry:
 Drive to Lower Cost Structure
 Fuel Efficient Demand
 Product Differentiation
 Globalization
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3. Cost Structure
 Wage Rates & Unionized
Workforce
 UAW wage rates vs. Non-UAW
 Average wage of UAW worker =
$64,000 (2012)
 Labor Costs in Japan vs. USA
 Automakers moving to
Asia, Mexico, Central Europe
 Exchange Rates
 In ST, US might see resurgence
due to value of the dollar vs.
other currencies
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4. Fuel Efficient Demand
 In 2009, The Big 3’s Revenue
Plummets 36.5%
 Rising Oil Prices Fuel Consumer
Demand
 Gasoline Prices , Disposable income
 The market for Mid to Large cars is
contracting
 Supply Planning inflexible and slow
 Hybrid competition is growing
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5. Product Differentiation
 Short Run Product Differentiation
 Companies trying to reduce variable
costs for the long run
 Focus on making their product
recyclable, reducing ecological footprint
 General Motors
 Chevy Volt—had high fixed costs with its
lithium ion battery
 Ecologic Label
 Ford
 US Leader in fuel-efficient 6-speed
transmissions
 Ford Focus and Ford Escape were more
than 80% recyclable
 Chrysler
 Plug-In hybrid with Town in Country
Minivan
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6. Globalization
 Competitive Pressure due to high
sunk costs
 Incentive for Manufacturers to
maximize sales
 Capital Intensive Plants, Unionized
workforce, Inventory
 International Product Cycle Theory
 US  Japan  BRIC
 Race to form strong global
partnerships:
 Technology
 Economies of Scale
 Capital Tie Ups
 Local Presence
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7. Conclusion
 Consideration of Global Environment
 Needs and Wants of Consumers (and Government)
 Continue to maximize profits
 4 major impacts to the industry:
 Drive to Lower Cost Structure
 Fuel Efficient Demand
 Product Differentiation
 Globalization
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8. Questions?
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9. BACKUP
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10. Global Car Manufacturing Industry Revenue
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11. Products and Market Segmentation
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12. More Market Segmentations
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13. Business Locations (2011)
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14. Cost Structure and Market Share
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15. Some External Drivers
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16. International Trade Balance
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17. International Product Cycle
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18. Sources
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 Liggett, B. (2012, January). Chevrolet to Put Environmental Impact Stickers on All of Their Cars by 2013. Retrieved from
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 May, G. S. (1989). The Automobile industry, 1920-1980. New York: Facts on File.
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 Thomas, C. R. (2011). Managerial Economics: Foundations of Business Analysis and Strategy. New York: McGraw-Hill/Irwin.
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