Although the general tendency in the automobile industry is to shift to smaller fuel-efficient vehicles, there is no unique pathway that should be followed by all producers. In order to evaluate the viability of the switch to the more eco-friendly cars, it is important to consider multiple factors. Thus, the analysis should assess the coherence of both company internal capabilities/resources and its external environment with their emerging strategy.
However, it is important to remember that the current SUV model is highly profitable. It is also possible to assume that the company’s brand image is associated with big cars. Hence, phasing out the SUV line may dilute the brand image and divert clients, who choose SUVs for reason unrelated to price or fuel efficiency. Moreover, the company hardly has the competencies necessary to operate in the highly competitive market for smaller vehicles. In this case, the loss of a successful product line may be detrimental for short-term profitability. In addition, the company should realize that the segment for smaller cars targets more price-sensitive customers, therefore the shift may require a sacrifice in terms of profit margins.
In general, the need to address the emerging demand for environmentally-friendly cars is apparent, however, it doesn’t have to be done by a radical shift from SUVs to smaller cars. Instead, the company may experiment with enhancing fuel-efficiency of their SUVs or start the new product line together with SUVs, thus diversifying product their offering and leveraging the synergies between the segments.
References
Committee on Science, Engineering and Public Policy (U.S.). (1992). Policy implications of
greenhouse warming: mitigation, adaptation, and the science base. Washington,
D.C.: National Academy Press.
