September 2011 ~ Workings of the Auto Industry

Monday, September 26, 2011

Ethical Dilemmas of the Auto Industry

7:00 AM Collin H 6 comments

Every industry has seen its scandals, and with those scandals comes an obligation for companies to do what is ethical. Many times, companies fall down on this in order to salvage their public image and bottom line. The auto industry is no stranger to ethical dilemmas that have plagued America's corporate landscape.

One ethical dilemma that faces car makers every day is safety versus cost. Auto companies are always developing newer cars, which raises an important question: in designing a new car, what will the balance between safety and cost be? Certainly, there is a demand for inexpensive cars in America and around the world. But there's also an increasing demand for safe cars. A car cannot be one hundred percent safe if cost-cutting measures in its design and production are taken. Auto makers have an obligation to find the perfect balance between low-cost and safe in order to protect lives.

Another dilemma facing the auto industry is that of outsourcing the production of certain components. Toyota faced whirling backlash in 2010 for its recall of over 2.3 million cars to fix faulty gas pedals that were reportedly causing rapid and unexpected acceleration. Looking at the incident today, Toyota made a bad, perhaps unethical decision to outsource the production of the gas pedals. Had Toyota known at any time during its relationship with CTS, the producer of the pedals, that shortcuts were taken in order to meet a certain price or quantity they set, then Toyota undoubtedly made an unethical decision. Auto makers sometimes take risks that could result in ethical dilemmas when outsourcing production of certain components for their cars.

Sources
(1) http://www.usatoday.com/money/autos/2009-05-19-auto-safety-small-cars_N.htm
(2) http://www.thetruthaboutcars.com/2010/02/why-toyota-must-replace-flawed-cts-gas-pedal-with-superior-denso-pedal/
(Image) http://www.fortworthinjuryattorneyblog.com/toyota_recall_090930_mn.jpg

Ford Expecting Significant Growth in Asia Pacific, Africa

10:25 PM Dan 2 comments

Ford's Figo model for India

Ford Motor Company is expecting significant growth in the Asia Pacific and Africa markets in the next decade, from one sixth of their total sales currently to one third by 2020 (1). Its Asia Pacific and Africa region includes emerging markets such as China and India, as well as Australia, South Africa, and Thailand. Many automakers, Ford included, have shifted their focus from the domestic market to these emerging markets since the recent economic downturn.

Ford's strategy for capitalizing on this emerging market includes designing and marketing more products for this region. The popularity cars with diesel engines, historically unpopular in the US, is growing more rapidly in India than in any other market (2). Ford will invest $72 million in a South India plant; the entire investment will go towards production of diesel engines for its Figo hatchback.

(1) http://online.wsj.com/article/SB10001424053111904106704576582193344608536.html?mod=WSJ_auto_IndustryCollection
(2) http://online.wsj.com/article/SB10001424052748703632304575451720343127244.html
(Image) http://www.autotribute.com/wp-content/uploads/2010/01/Ford-Figo.jpg

Corporate Social Responsibility

10:13 PM Megan Rosburg 2 comments

Corporate social responsibility is a term that acts as a moral monitor for businesses to keep themselves accountable. It covers the companies conformity to obey the law and high ethical standards that are set by the consumers. Active CSR companies would emphasize its positive involvement with the community, environment, employees, and customers.

Several companies, including Toyota, are promoting their CSR through the research and development of environment-friendly cars. Toyota has stated in their 2011 Corporate Social Responsibility Report that they are “directing their efforts into creating plants which harmonize with nature and coexist with our communities in progressing to reduce CO2 and save energy during production.” (1) Not only is Toyota one of the top leading sellers in the Hybrid car product line, but now they are currently aiming to develop production facilities and machinery that will have less harm to the communities and environments that surround them.

Toyota has also released statements that mention their contributions to the damaged areas from the 2011 Japanese earthquake and made it a priority on resuming production of supply parts for vehicles in need of repair used in recovery efforts and the disaster area. (1) Toyota Auto Body also donated 100 million yen to disaster relief efforts, and then from the collected contributions donated six vehicles. (1) On top of these offerings, Toyota also sent drinking water, food, and other living necessities to the victims of the disaster-stricken Japanese land. (1) They claim that “Industry is said to be a public institution of our society.” (1) Toyota Auto Body provides a useful service in society, and makes an effort to provide vehicles which meet the average customer’s expectations, as well as those of the elderly, the handicapped, and customers throughout the world “in looking to continue as a corporation needed by society”. (1)

Sources
(1) http://www.toyota-body.co.jp/english/csr/index.html
(Image) https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQfk_uo3pdfAB0OS6B0g-1jiv5x65tK0to65r6tuIo14h9F48U1whHccDih1Cc-1it2gcbqF3NNnU644wXswbVIoxl7HlID94InK-_n6Ko9PNx3S6FP0Ey0kxZnMeYwxaeETxuxfz0_epy/s1600/toyota.jpg

Mission Statements and Significant Values

4:06 PM Monika Smidova 2 comments

Every group, whether it's school, bank or family has its own rules. Rules must be followed and with no rules is hard to find the way to success. Therefore, companies have set their own rules, values and mission statements that seek to accomplish various goals, such as providing high-quality products to their customers, treating employees fairly and being responsible to their communities.

Each company within the auto industry has different values, for example Toyota sees its core values in improving education and supporting parents and children who communicate poorly in society. Toyota cooperates with NCFL and they help to establish family literacy sites in 30 states (1). Their Integrity-based ethics codes work very well because for their employees Toyota mainly means Excellence, Pride and Quality. More than 1 million Hybrids cars sold in the USA last year only prove enviromental care. In cooperation with Audobon they also launched the program called TogetherGreen in 2008 which encourages volunteers and supports creative projects (2). Because safety is probably the primary value for customers Toyota started the free project Toyota Driving Expectations (TDE) for teenagers and their parents to improve their driving skills and prevent car accidents (3).

Ford developed this statement: "One Ford. One Team. One Plan. One Goal." This can encourage their employees and moreover, attract their potential costumers because these powerful statements can change people´s mind (4).

Volvo has a slightly different vission: "Beautifully simple and simply beautiful." This can attract the consumers who not only take care about car design, but also appreciate the marvel of what a car actually does (5).

Toyota takes this mission: "To attract and attain customers with high-valued products and services and the most satisfying ownership experience in America." (6) Every company wants to be successful so we must set the highest goal for being a successful and earning company.

(1) http://www.toyota.com/about/our_values/

(2) http://www.toyota.com/about/philanthropy/environment/

(3) http://www.toyota.com/about/philanthropy/safety/

(4) http://corporate.ford.com/dynamic/metatags/article-detail/one-ford

(5) http://www.volvocars.com/intl/top/about/values/pages/design.aspx
(6) http://www.toyota.com/help/faqs/company-what_are_toyotas_mission_and_vision_statements.html

Image: http://www.toyotainbusiness.com/fleet_content/environment/green_technology/index.aspx

Revenue Growth - International and Domestic

5:52 AM Dan 2 comments

The auto industry, like all industries, is being changed massively by technology and trends like globalization. Emerging international markets, especially, are changing where and how revenue is growing for this industry. The US car market is changing as well due to changes in complimentary goods (primarily oil), different needs, and (to an extent) different tastes.

International Auto Markets

The international auto markets are growing rapidly. US automakers and international automakers alike are expanding (or attempting to expand) into these markets. Automakers local to these emerging markets are also growing. The auto industry in some markets has grown more then 90% in recent years, compared to US growth which has remained stable or even shrunk in recent years.

Domestic Auto Industry Trends

The “green” trend has affected the Auto industry just as it has affected other industries, be it the trend to save money in hard financial times or to save our natural environment. The US trend in recent years has been towards smaller cars. Companies that can change with this trend are finding success while companies that could not have seen far less revenue growth in recent years. As these companies change to keep up with the cars consumers are buying, their revenue is beginning to grow as well.

Articles mentioned in this post:

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

http://online.wsj.com/article/BT-CO-20110913-713052.html

http://oica.net/category/production-statistics/

http://online.wsj.com/article/SB121726248201090179.html

(Image) http://commons.wikimedia.org/wiki/File:China_Sign_Slow.jpg

Auto Workers Union Revises Contracts with U.S. Auto Makers

9:18 PM Collin H No comments

The United Auto Workers, a union which represents more than 39,000 auto workers in North America (1), is reworking labor contracts with Ford, General Motors, and Chrysler. A tentative agreement reached with GM on Friday will help shape similar agreements with Ford and Chrysler. GM was chosen as "the lead company" because the UAW felt GM was most likely to meet the UAW's terms (2).

The agreement with GM will not become an official contract until all 45,800 UAW workers at GM vote to ratify it. The agreement secures several items on the UAW's wish list that were not included in previous contracts. This contract is also the first new contract to be reached since GM recieved a federal bailout. The new terms include raising wages $2 to $3 for entry level workers and reopening a plant in Tennessee which has been left in the dark as a part of GM's restructuring plan. GM also included terms in the agreement that link employee bonus checks to vehicle quality (3).

An agreement with Chrysler has yet to be reached, partially caused to disagreements and accusations between Chrysler's CEO and the UAW president. Negotiations will resume this week. Ford has been waiting to see the terms of the GM and UAW agreement before it finalizes its own agreement.

While GM promised to restore previously lost jobs in its agreement, Ford may not be able to commit to similar action. GM has a larger workforce within North America and its factories have been operating at a higher capacity than Ford's factories.

The problem with Chrysler's agreement may be matching a raise by Ford in entry level workers' salaries. Chrysler has more entry level workers than Ford, making it more costly for Chrysler to raise that group's wages.

Sources
(1) http://www.uaw.org/node/39
(2) http://online.wsj.com/article/SB10001424053111904194604576579123890851828.html?mod=WSJ_auto_LeadStoryCollection
(3) http://online.wsj.com/article/SB10001424053111903927204576574693025239016.html?mod=WSJ_auto_IndustryCollection
(Image) http://www.sodahead.com/united-states/should-politicians-wear-their-sponsors-patches/question-

Supply and Demand of the Auto Industry

6:46 PM Megan Rosburg 2 comments

Like all other industries, the auto industry can be illustrated by basic macroeconomics. If there is a low demand, then the purchase price will decrease. On the contrary, if the demand exceeds the supply of the vehicles on site, then the price can have a sudden increase. The manufacturer controls and oversees the inventory that is shipped out to the dealers (1). The price of cars will also increase in the buyers' incomes enlarge. Automobiles are considered a normal good, therefore if average income rises, so would the demand, supply, and price of cars (2).

Gasoline, a strong complement of automobiles, will always continue to have a steady effect on the demand curve (2). As the price of gas has risen, the demand for smaller and more fuel efficent cars has increased exponentially. The market for SUV's has decreased, therefore Toyota reacted by raising the price and production of its Pruis hybrid cars (3). In just two years (2005-2007) Toyota doubled its production rate of Prius cars, all because of simple supply and demand economics.

Sources

(1) http://www.carsforgirls.com/index.php/supply-and-demand-or-how-inventories-control-price/

(2) http://cstl-hcb.semo.edu/kerr/backdoor%20to%20economics/chap11.htm

(3) http://are.berkeley.edu/~sberto/AutomobileIndustry.pdf

(Image) http://www.thetruthaboutcars.com/wp-content/uploads/2007/02/x05co_ft049ar222.jpg

Basic Economic Facts About the Auto Industry

4:25 PM Monika Smidova 2 comments

The automobile is a primary mode of transportation for many developed economies. About 250 million vehicles are in use in the United States. Around the world, there were about 806 million cars and light trucks on the road in 2007, consuming over 260 billion US gallons (980,000,000 m³) of gasoline and diesel fuel yearly. What are the main conditions for a well-developed Auto industry? Basic and key reasons for any successful Auto business are:

Stable business and political environment (NAFTA member)
Highly developed technical base
Highly educated workforce, good access to university graduates with technical education
Strategic position

People use cars daily to get to work, to get children to school, shopping etc. They need cars every day. So how do the Auto companies make money? The primary income of money is in selling their products to people at a reasonable price. The additional incomes can be automotive repairs and maintenance. On the other hand, what are the companys' costs? There are few examples:

Production costs
Employee salaries
Automobile dealers
Auto parts, accessories, and tire stores
Promoting the product, such as advertising, billboards

In 2010, the number of cars in operation for the first time exceeded the value of one billion pieces. Magazine WardsAuto registered it. The government through information and historical development trends calculated that currently 1.015 billion cars run the world.

Sources
(1) http://www.hybrid.cz/1-miliarda-tolik-dnes-jezdi-po-svete-aut
(2) http://www.czechinvest.org/en/1automotive-industry
(3) http://en.wikipedia.org/wiki/Automotive_industry
(Image) http://www.fashionera.in/website/fashionera/gift/automobile/automobile%20industry.htm

Welcome to Our Blog!

3:42 PM Collin H No comments

Welcome to Workings of the Auto Industry! In this blog, we'll explore what drives the auto industry. The auto industry is one of the most important and largest industries in the global economy. Last year, over 77 million vehicles were produced around the globe! (1) Throughout this blog, you'll be able to explore everything from government recalls and regulations to manufacturing and marketing. Get on the right track to learning about the auto industry!