Since the beginning of the last century, automobile companies have fought for control of a quickly expanding market in the newly created automobile industry. Hundreds of companies attempted to secure their place in market but ultimately, only three companies remain today (Wright, 2012). The decisions, mergers, and products those three companies made is ultimately what kept them going. Starting a business and ensuring its success are two different things entirely. A successful business will recognize the need to adapt to the various pressures exerted on it from other forces.
Fuel efficient and eco-friendly vehicles are among the recent consumer trends within the automobile industry. The risk of new carmakers entering the marketplace is relatively low because of the high economic and political barriers that exist in this industry. A recent example of a company who has succeeded in entering the marketplace with a new product is Tesla Motors. The car company is still in its infancy; however, they have designed and delivered several all-electric vehicles to the marketplace using a platform they created. The original models produced by Tesla Motors range from $50k - $110K, making the vehicles out of reach for the majority of consumers. According to their original business plan, they were to build a sports car, using that money build an affordable car, and with that money build a more affordable vehicle (Gertner & Kratochwill, 2012). The company has so far completed two of their business objectives; therefore, it would be safe to conclude the company will not be going away any time in the near future. New carmakers are an extremely rare occurrence in this market because of the ability the current manufactures have to meet customer demands. Tesla Motors is the exception, not the rule.
The car industry is one that changes often because consumers’ wants and needs in a vehicle changes often. Many consumers spend a lot of time in their vehicle and therefore look for modern conveniences in the vehicle they purchase. With increasing demands for lower prices and more options, some companies look to merging to ensure profits and growth are made. A merger consists of two companies roughly the same size comes together to form a new entity. Colander, D. C. (2010) in the auto industry mergers can take place to increase profits. A Horizontal merger is a merger in which two companies such as the auto industry sell similar products to the same market or consumers in this case. Colander, D. C. (2010). The purpose of the merger is to expand the two smaller companies into one big company and provide better options for the consumer. A merger such as this could offer better financing to consumers, which means more sales and more profit for the merged company. The second merger that would fit with the auto industry would that of vertical merger. A vertical merger is one that joins two companies that do not compete but operate in the same supply chain. Colander, D. C. (2010) For example, the auto industry would benefit from this type of merger if done with an auto parts supplier. The auto dealers will be able to repair cars sooner and provide better customer service and the supplier would gain a steady flow of business and better pricing. Better pricing on parts allows better control over the manufacturing process.
The choice for these two mergers allows the auto industry to stay in contact with consumers and provide better products. The economy is changing and therefore needs and wants are changing. The consumer drives the auto industry. When a merger is discussed, the auto companies must decide what the consumer wants and what they are willing to purchase. Horizontal and vertical are both great mergers because of the opportunities of cutting costs for consumers and increasing producer profits.
Current Government Policies and Regulations