Health Care Course Paper

The automobile industry has been plagued with high costs, low profit margins, and accelerating competition for many years and, with recent emphasis on global climate change, now has increasing pressure to make the right decisions in many areas, including R&D and manufacturing. (Schwarz, 2008) The cost of energy and raw materials continue to increase due to global demand, fluctuations in exchange and interest rates pose another challenge and are difficult and costly to the industry, as well as the growing demand for the insertion of high-tech equipment. (Schwarz, 2008) The recent trends and challenges include external factors, customer, competition and the industry itself. (Schwarz, 2008) The critical elements for automotive makers to stay competitive in the seemingly volatile markets are low cost production locations, and ongoing upgrades to meet the customer demand.

Energy and raw materials costs are the current highest cost drivers for the automobile industry. The energy crisis has had a toll on automotive makers; with rising fuel costs the demand for more fuel efficient vehicles has affected sales leading to the excess inventory for the once popular, sport utility vehicle, which is now undesirable to the consumer. The cost of automotive raw materials such as steel, resins, rubber, copper and aluminum are rising, typically 10 to 20 percent from a year ago. (HMH, 2011). According to the survey of 110 suppliers, rubber and plastic resins appear to be costing suppliers the most headaches, rubber and plastic prices rose 11 to 20 percent this year, and 25 to 38 percent suppliers reported price increases greater than 20 percent for both. (HMH, 2011) Steel, aluminum and copper prices also rose significantly, but many suppliers say automakers are indexing those materials. Not so with rubber and plastics. With indexing, automakers pay suppliers more for parts if raw materials raise suppliers' production costs. Automakers pay less if the price of raw materials drops. Kim Korth IRN president states that automakers are generally willing to index a given raw material if they can monitor price fluctuations through public price exchange, or benchmark, which do not exist for rubber and resins. (HMH, 2011). In the past the Detroit "Big 3" were noticeably reluctant to index, but recent studies show Ford Motor Co. and Toyota Motor Company are significantly more willing to index materials than their rivals.

The current trends as indicated in the diagram below highlight the global challenges to the automotive industry. Based on these Challenges the eight major trends affecting the automotive makers can be evaluated. The demand for cars is growing, stemming in large part from China, India and Eastern Europe (Schwarz, 2008) and the demand for increased tech savvy equipment as well while the leaders across the United States, Western Europe and Japan stay balanced or flat lined. Growth is lopsided, thus materials go up in price and more makers must reconsider how to purchase raw materials at the best cost. Legislation for more energy efficient cars also has placed added burdens in manufacturers especially because new technology costs more in turn driving up costs but the demand by the consumer is not the same. Even though people want fuel efficiency, at times to cost seems a tad exorbitant.

Competition has been fierce especially from Asian markets and a few other countries to include the South African automotive industry as they continue to explore the global marker. Not only are they exploring but they are winning the loyalties of buyers as they willingly offer the tiny perks that many are seeking. These companies may have found the winning formula in such that they are not concerned with the cost but with the end result and market value of the product. Toyota's globalization and localizing manufacturing states the following "no matter where Toyota vehicles are made, they must have the same high level quality" (Toyota Global Vision, 1995-2012). Industry is the final big trend and Toyota demonstrates the focus on alliances and partnerships in the US and other countries, using local suppliers, employing the standard that vehicles should be produced

...