Automobile industry is one of the most lucrative sectors in the contemporary business environment. It is evidenced that the car sales over the past five years have increased dramatically, driven by the rise of disposable income in rural and urban areas and the access to the easier financing options for all categories. Additionally, the sector is highly competitive and with the entrance of the new players during the past decade, the companies started to feel more pressure on the cost side of the business and the necessity to become more responsive and flexible to meet the changing profile and the demands of the customers (Kotler, 2009). There are various factors, which affect the decisions and preferences of individuals with regards to the cars. To better understand these trends, one should be able to consider the entire multifaceted picture of pressures, which involve socio-demographic, economic, political, legal, technological and environmental factors and media influences (PESTEL).
It is possible to argue that a car is one of the most significant purchases which a family makes. With that in mind, car manufacturers are always concerned with such elements as what constitutes the perfect vehicle, what customer segment should they target and what are the external influences, which affect the decision about the brand and the model of the vehicle. Such elements as price, brand reputation, features of the automobile, safety standards and other specific characteristics are, without any doubt, relevant to the purchase. But the scope of influencing factors is significantly wider. It is critical that companies recognize the influences and evaluate the market environment and the PESTEL and media influence factors to build relevant business level strategy and product positioning scheme (Brady, 2011). That said, the objective of this document is to conduct a specific analysis of the environmental trends currently affecting the American consumer purchase of automobiles.
Economic climate and environment play a tremendous role in the development of the automotive industry and the consumer trends, observed in the sector. According to McKensey & Company (2012) report on the industry trends, among others, cost pressure and complexity of the business, driven by internationalization and globalization, fuel prices and the changing industry landscape in terms of domestic consumer trends outline the major challenges, which must be addressed by the companies in the sector.
First of all, contemporary business environment and the automotive industry specifically is the subject to the economic stability and the volatility of the individual markets. As such, economic crisis of 2009 illustrated the level of sensitivity of the industry in general to the external environment and helped the competitors understand their capability gap and major areas of focus. Internationalization of the business, on the other hand, and globalization create numerous opportunities, which can be summarized by internally and externally driven. On the internal side, the companies can benefit from outsourcing the upstream supply chain operations and procurement decisions, shifting production and assembling operations to low labor cost locations such as India and China. Externally, the growth of the business and its expansion to different geographical areas builds on external influences, which leverage the revenue streams, while economic situation in one location is difficult, the other regions may present tremendous growth opportunities. The impact of these elements on the business is seen through the decisions of such corporations as Ford, who entered Brazil market with own production and was forced to close the operations due to unfavorable economic and political environment; or BMW, which shifted the assembly operations to Russia, which allowed significant cost-saving and import tax reduction, resulting in better vehicle prices and, consequently, increased sales.
The above factors influence the organization, but what critical elements of decision-making build on the customer behavior? Car is, in the majority of cases, is an essential and the largest purchase of a family. While the decision is influenced by the vehicle price and characteristics, it is also influenced by the fuel costs, which help the family or individual measure the total cost of car ownership. Additionally, in many cases people choose to finance their vehicle and the understanding of these costs determines the possibility, the model and the point of purchase. Economic environment, its stability or volatility have a significant influence on the consumers´ propensity to save. With that in mind, at the times of crisis, such as the recent economic downturn, consumers reduce their spending for “non-essential” purchases or leave it for “better times.” The economic crisis negatively affected the fuel prices in the United States as well as increased the volatility and risk of car loans on the domestic market, resulting in a reduction of the total volume of vehicle acquisition in business-to-consumer (B2C) segment. Currently observed economic growth in the country and globally, however, illustrates the recovery of the industry. McKensey & Company (2012) supports this argument with the following figures. Total annual profit for the passenger car market in North America in 2009 was estimated at EUR 9 billion, falling down to negative EUR 11 billion in 2008 and recovering to EUR 23 billion in 2012.
It is evidenced that the automotive industry generates over USD 43 billion in tax revenue for the US government, where USD$ 14 billion is the income tax gain McKinsey & Company, 2012). The reality shows the revenue from the car sales in the country continues to grow, constituting a 17% increase in 2013, relative to the same period 2012. What factors constitute the political landscape of pressures I automotive industry? The reality shows that as much as economic factors, the political element plays a significant role in shaping consumer decisions with regards to the vehicle choice and purchase decision. Governmental tax regulations, gas emission standards and a variety of other factors determine the complexity of the decision, which should be taken by the consumers and the companies, when it comes to the choice of the vehicle and strategic options for the business. It is important to mention, however, that all the political and economic pressures are seen as a combination of factors, which comprise the decision-making portfolio. As such, while the fuel prices are important for the customer decision, the advantages of the rebate, which one can get for using the vehicles with lower carbon gas emission rate, can also contribute to the final decision and the choice of the vehicle. According to the KPMG report (2014) more and more consumers are concerned with the emerging technology of hybrid, electric cars, reduction of the internal combustion engine, hybrid fuel systems and other elements. This interest is the result of the active governmental propaganda for the use of environmentally-friendly transportation, subsidies for the companies and consumers, which choose to test the technology and other political factors.
One of the important factors, which influence customer decision is the car rebate. To better understand the manner in which this element of the external environment can influence the companies, it is important to recognize the mechanism, which determines the work of car rebates in the United States. In fact, car rebates are the programs, which stimulate the sales of particular models, offering savings to consumers. The range of rebates includes cash return, low-interest financing and special leases. Automotive industry works with a variety of customers, but, yet, a major customer segment is a middle class consumer, which is price sensitive and looking for practically and saving in his car purchase decision. With that in mind, the rebates, offered by the car dealers or the government to incentivize the use of economical and environmentally friendly cars, as well as specific manufacturers´ incentives for particular model sales, play an important role in the consumer decisions. One of the most recent and popular examples is the governmental incentive for the use of more fuel efficient vehicles, such as all-electric vehicles and plug-in hybrids. Such political actions and business decisions to a great extent influence and shape the demand of the market. At the same time, the degree to which rebate and incentive culture can affect the consumer depends on the ability of the government to build on the required infrastructure to ensure that the consumers have the same access to the service for hybrid and electric cars as they have to the classic fuel vehicles. At the moment, this infrastructure is one of the major stumble blocks and concerns of the industry as well as the government.
Automotive companies are adapting to the fast-changing competitive landscape of the automotive industry. Technological advancements have significant influence on the organizational decisions with regards to the car features and characteristics as well as on the consumers´ considerations with regards to the vehicles. As such, such, while consumers are concerned with the features and expect the automobiles evolve along with the available technology; they at the same time are influenced by the general public opinion with regards to the durability and reliability of these features.
Technology affects the industry in various ways, but one of the most significant influences is seen in the reduction of the lifetime of the products and, primarily its features. One of the good examples is the GPS function, available in the cars. Ten and, even, five years ago the customers considered GPS navigator a luxury feature. They were ready to pay a significant amount for adaptation of their vehicle for this function, today, wide amount of market alternatives and even GPS navigators available on a mobile phone, made this function significantly less exclusive and, thus, shifted it from “desire” to “good-to-have” category. Following the reality, car manufacturers had to adjust their unit profit expectations. Similarly today, the idea of hybrid and electric cars occupies international consumer market. These cars are still considered exclusive, and only 24% of the American consumers consider investing in this technology. With the development of the infrastructure and growing popularity of this type of vehicles, it is possible to expect that the companies will have to adjust their production, costs and profit expectations to the changing consumer landscape (KPMG, 2014).
It is possible to argue that automotive industry is undergoing very rapid transformation, influenced by stiff environmental regulations. Customer preferences, influenced by the governmental incentives and general popularity trends in the industry, affect automotive sector in a way to reduce the carbon footprint. It is not easy to choose between the mega big hummer and small economic sedan, but contemporary business environment makes customer consider not only the design, comfort and style elements of the product, but look into the financial aspect and consequence of their decision. In a similar way customers relate with the companies, which attempt to influence their choice between small turbo diesel and V8. The point that should be made here is that environmental factors, such as the urban environment as opposed to rural setting, level of infrastructural development and personal preferences have a strong influence on the choices made by consumers in the automotive industry. These influences are especially relevant, given the wide range of product options and strong competition on the market.
Governments around the world and not only in the United States have adapted very stringent policies with regards to the manufacturing and technical characteristics of modern vehicle. Implementation of policies resulted in the wide consolidation of the businesses and the constant challenge for the original equipment manufacturers (OEMs) and their auto part suppliers to improve and innovate their product portfolios. Customers, influenced by the global environmental trends and technological advancements, influencing the environment are more demanding, placing the following elements in the core of their decision-making with regards to the car purchase. Fuel efficiency and carbon footprint reduction is one of the constructs for taking a decision with regards to the model and brand of the car (KPMG International, 2010). The customers, today, recognize the level of infrastructure development to serve vehicles with alternative fuel solutions and, thus, become more interested and keen to test and experiment these products on the market. Additionally, the solutions, offered by the cars with alternative fuel often bring significant cost-saving to the consumers, which builds on strong competitive and even substitute product for classic automobiles. With that in mind, contemporary OEMs are becoming more considered with widening their product range and offering one-stop-shopping solution for their B2C clients.
The last, but not the least is the impact of media on the decisions of the customers. According to the PWC (2012) report, over 34% of the population in the age range between 15 and 24 years old are engaged in the social media activities, 22% are engaged in emails, and 42% often use instant messaging. The research shows that the OEMs and dealers recognize the growing importance of the social and other media sources in building and shaping customer decisions and opinions in the industry. During the ten years between 2002 and 2012 the number of dealers, using the newspaper advertisement grew from 10% to 47% and internet promotion increased from marginal 5% to 20%. The companies more and more try to build on the continuous relationships and brand loyalty through active non-traditional engagement methods, especially through social media. As such, 65% of the US consumers spend time in online, researching the brands and their products through social media channels at least once per month. Companies in the automotive industry actively use this particular trend by engaging in online communities, Facebook presence, blogs and other social media tools. According to PWC research, over 26% of the players in the industry have their online communities, 33% of the companies use Facebook and Linkedin and other 21% actively uses blogging to promote their brands (PWC, 2012).
The above statistics outlines the importance of the social media in shaping consumer opinion and preferences in the industry. At the same time, it is possible to evidence that traditional media sources, such as newspaper continue playing a significant role in building on advertisement and promotion strategies of the automotive companies. Facebook community grew to one billion users by 2012 and the impact, which social media has today on the consumer decision to purchase a car is tremendous. It is difficult to argue that social media will be able to substitute the traditional advertisement channels, such as direct sales person contact and newspaper in the near future, but it will, surely, constitute an important element in the decision-making process in automotive B2C sector.
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