Advances In Management And Organization Issues In The Automobile Industry Essay.

The Automobile Industry was, for a long time, the world’s biggest industry (only overtaken towards the end of the twentieth century by the Information and Communications Technology Industry). It, therefore, should not surprise that the automobile industry has been a rich source of experience.

Discuss the numerous advances in the understanding of management and organisation issues which have come out of the motor vehicle industry.

Individual Components

Explain each individual component and select a key insight from the industry such as those attributed to:  

• Henry Ford: “Bringing the work to the worker
• Alfred P Sloan: Cost Centres  
• The ‘World Car’ Concept  
• Mergers such as the Chrysler Mercedes-Benz or Nissan Renault

The Evolution of the Automobile Industry

The report gives an overview of management and organizations in the global environment of Automobile Industry. In United States, the industry started in the year 1890 which was overtaken by one of the largest automobile producers of Japan in the year 1980 followed by China in the year 2008. Presently, the United States, ranks second amongst the largest producer of the world in terms of volume and an approximate  annual manufacture ranging between 8 to 10 million. Towards the end of 1920s, the motor vehicle industry remained dominated by three major companies that include General Motors, Ford and Chrysler (Law 2017). The automobile industry underwent numerous advancements over the years. In absence of advancements, automobile industry would not have had the massive growth that it experiences today. Cars manufactured in the past, required repeated repairs, experienced easy breakdown and compared to the death machines in absence of the safety features. With each passing year, the advancement in the industry has led to better delivery in terms of design and technology. In fact, cars of the present times are outcome of such advancements that will continue for the coming years. Comfort is terms of seats and resign of the models is one of the best outcomes of the advancements taking place in the industry. The cushioned seats in varied fabrics along with the seat warmers accounts for an enjoyable ride irrespective of the distance and the weather. Besides, there have also been advancements in the safety measures. The improvements in safety have made automobiles a better choice for the people of all the ages. The introduction of the air bags and the seatbelt keeps the passengers safe in case of accidents. Vehicles are also equipped with cameras thereby allowing the drivers to get a better view of the back and thereby avoid accidents. Increasing level of advancements  undertaken in the automobile industry on a day-to-day basis. Such advancements might do away with the need of a driver for driving a vehicle.  The report gives a detailed insight into Henry Ford and Alfred P Sloan’s perspective of cost centres. There is also a detailed description of the ‘World Car’ concept and information related to mergers such as Nissan Renault or Chrysler or Mercedes-Benz. Francois Isaac de Rivaz invented automobiles powered by consumption in the year 1807. Henry Ford was the first to create self-propelled vehicles modern automobile.

Henry Ford was the entrepreneur responsible for changing the world by projecting United States as the leader of industrial race (Gartman 2013). In wake of such transformation, the consumer culture of America led to the creation of the largest economy across the world. The groundwork put forward by Henry Ford enabled United States in surpassing other industrial nations and since then there has been no looking back (Drucker 2017). In the year, 1896 he designed his first car at the age of thirty-three. Two consecutive failures in business at the age of forty did not make him influential but he did not trying. In 1903, he started Ford Motor Company with the help of an old friend (Wilson 2014). The latest designs of his automobiles helped in attracting the investors. Henry Ford also played the role of an analyst who not only led to creation of cars but the ways in which they functioned along with studying the functioning and creation of parts ware. By the year, 1908, he used the current industrial trends of interchangeable parts and assembly line for ensuring quicker assembling of cars (Conlon and Perkins 2018). This made his workers manufacture an automobile in just 45 steps much lesser than the time required earlier. Therefore, in a matter of simply five years into the company, Henry Ford was in a position of unveiling a car that would bring about a change in this world. Moreover, he did not want to have a car for the rich but the one loved by all (Galbraith 2015).

Individual Components of the Automobile Industry

To make sure that his cars were affordable, he reduced all possible cost while maintaining a fluid and safe environment so that production does not slow down (Teece, Peteraf and Leih 2016). Thus, he led to the creation of sharp division in labour in addition to introduction of assembly line and the interchangeable parts. It was necessary to maximize production without wasting the time of the workers. The workers for Assembly line were responsible for getting the materials, own parts and the tools (McDaniel 2014). The other workers did them. The extra time necessary for getting the materials and parts to the proper locations also reduced. Runners, trolleys and the intricate modes of the slides were used for transportation. The heights of the belt made it easier for the workers in standing for longer times. There was elimination of time-consuming motions like reaching up for grabbing or bending. The processes were analyzed in a tireless manner along with micromanaging of the plants in a manner as if his entire life was dependent on delivery of the Model T for a particular day (Graves 2013). Henry Ford ordered for modification wherever simplification seemed possible. This resulted in the outcome when a worker had only one task to perform on a single day and it hardly involved any training. One should however take a note that Ford invented none of the tactics but he had the expertise of combining scientific management in an effective manner.

Ford who helped in saturating the car market unleashed another brilliant move. This was done by giving his workers substantial raises. During the early 1910, the climb it the sales and the production rate enabled Ford in providing a hike to the employees. By the year 1914, the workers were paid a double minimum wage of about five dollars per day. This made the workers suddenly join the middle class category and buy cars with the additional income. The strategy also helped in enhancing the loyalty of the workers and at the same time decreasing the turnover that kept the company humming and stable.

Ford played a longer and deeper game. The company remained in business for building expensive and durable goods. The first ever cars built in the year 1903 costed around $3,000, and hence remained inaccessible to one percent (Snow 2013). He however recognized that automobile would act more successful as volume business instead of niche product.

Key Insights from the History of the Automobile Industry

Figure 1: Ford Model T

Source: (McDaniel 2014

Alfred P Sloan became a part of General Motors in the year 1918 during the time when the company faced turmoil and its future unsecured (Drucker 2013). Over the next four decades under his leadership, General Motors experienced a dominant growth in United States. The structure of the automobile industry is buffeted by the foreign competition and newer technology. In the book, ‘My Years with General Motors’ published in the year 1963, Mr. Sloan put forward a description about the General Motor’s history from infancy to maturity. Here, Alfred P Sloan put forward various aspects of the industry that remained familiar to the modern readers. He also described about the company’s model changing activities on a yearly basis that involved the periodic changes in style and acts as key component in inducing the customers for trading in newer models. He further mentioned that the logic behind the distribution model has remained unchanged (Slovic 2016).

Mr. Sloan also had a belief that an organization with stable dealer acts as the necessary condition for ongoing prosperity of manufacturer. He also noted that an automobile is not simply an ‘off the shelf’ product brought by the consumers on a day-to-day basis (Gerarden, Newell and Stavins 2015). According to him, it puts forward an expensive and highly complex investment that a buyer looks forward on frequent basis without any knowledge of mechanical complexity (Chowdhury 2014). In early days of Automobile, frequent service was necessity and provided by the skilled technicians. The manufacturer and the franchise dealer are partners who took on different roles and assumed different investment levels. In fact, both manufacturer and franchised dealer undertake related and normal business risks. The dealer undertakes risk in the investment of selling and service facilities, the manufacturer undertake risk of investment in the production facilities that included the higher annual cost of tooling and engineering development. Both are dependent on the appeal provided to the product by the manufacturer and the potential of franchised dealer in efficiently selling and servicing the product.

Finally, a permanent relationship in business must be “win-win” in terms of mutual benefits (Bloomfield 2017). To address the difficulties in dealer network during 1920’s, Mr. Sloan made a practice of making personal visits to the dealers. He along with several of his associates went to every city in United States and paid a visit to close to five to ten dealers in a particular day.

Henry Ford and his Contributions to the Industry

Alfred P Sloan was not only an administrative genius but brought about a transformation to General Motors from the cluster of the business units into a modernized business enterprise. He gave General Motors an organizational structure, later copied by various organizations of 20^th century. The company was reorganized into five separate automobile divisions with each of the divisions producing cars in varied price ranges. He also decentralized the production thereby ensuring each of the operating divisions with freedom of an initiative for competing with increasing number of business (Etzioni and Lawrence 2016). He however centralized the administration thereby leading to the creation o strong central office having larger number of advisory and financial staffs for coordinating and devising the overall policies of the company.

Thus under Mr. Sloan, General Motors even surpassed the Ford Motor Company in terms of the sales of the Automobile during the latter half of  the 1920s. The company in fact became one of the largest corporations across the world (Hoffman 2016). General Motors thus dominated the market and accounted for over half the sales of automobiles in America. Mr. Sloan however gave up presidency and was the appointed chairperson of the Board of General Motors in the year 1937 after his refusal of undergoing negotiation with United Automobile Workers after they were responsible for staging the sit strikes in the various GM plants. Although he retired from chairperson in the year 1956 but he served as a honorary chairman.

Figure 2:  Cars Manufactured by General Motors in the Initial Days

Source: (Etzioni and Lawrence 2016)

The concept of ‘world car’ refers to the engineering strategy used for describing the design of an automobile for suiting the needs of the global automobile markets while causing minimal changes to the market where it is sold(Motavalli 2014).  The aim of the world car concept lies in saving the costs and increasing the quality through standardizing the parts and designing for a particular vehicle belonging to a particular class with the hope of using cost savings for delivering superior product for satisfying the expectations of the appeal, quality and the performance of the automobile buyers across the world. The examples includes Focus and Ford Mondeo, modern no frill car including Dacio Logan, Fiat Palio and  VW Fox  and the luxury cars belonging to the  Lexus LS and the BMW 3 series.

In pioneering days of automotive industry, automobiles were designed for the local market and models such as Ford Model T were engineered for coping with rugged terrain and rural lifestyle of the United States (van Tuijl and Carvalho 2014). However, Model T represented the first car in the world that had its knockdown kits  assembled in England, Argentina and Canada. In fact, two of the largest car manufacturers of time, General Motors and Ford Motor Company that belonged to United States focused on the global expansion with General Motors either collaborating or acquiring the local automotive manufacturers that included Vauxhall of England, Holden of Australia and the Opel of Germany. Ford on the other hand led to the creation of overseas subsidiaries like the Ford Britain, Ford Germany and Ford Australia. The subsidiaries of both General Motors and Ford would develop into separate lines of modified automobiles independent of the American parents.

In the year1933, Ford designed its first car based on the European market. The model however did not sell in the United States (Bohnsack, Pinkse and Kolk 2014). Developed by Ford Britain and manufactured by Ford Germany the model was known as Ford Model Y. General Motors however responded with Opel 1.2 litre developed by the General Motors United States but sold and built exclusively in Europe. This led to the beginning of divergence of the vehicles sold by General Motors and Ford across the world. In Australia, Coupé utility began to cash on the popularity by considering it as a vehicle to not only go to the Church on Sundays but also carry necessities to the market on the Mondays.

Alfred P Sloan and his Contributions to the Industry

Chrysler Mercedes Benz 

Chrysler Corporation represents an North American mass-market automaker renowned for the line up of flashy vehicle and often the below stellar quality while the Germany based Daimler Benz AG, the maker of the Mercedes Benz cars, symbolized an excellence of German engineering that whips out the conventionally stylized luxury cars for the wealthy buyers across the  world. When the third-largest North American carmaker made an announcement of $57 billion merger with the biggest industrial firm of Germany there was no one who questioned the reason behind the deal (Bruner et al., 2017). Everyone including the rival manufacturers, union leaders and the financial analysts supported the partnership saying that it made perfect sense since on one hand it provided Chrysler with the global presence which it lacked while on the other hand it established Daimler-Benz as one of the key players in North America where seemed weak. However, there was one thing that remained unclear as to whether such a deal that is also one of the biggest mergers between the manufacturing companies will lead to the triggering of the wave of similar alliances in auto industry that struggled with overcapacity, huge cost of research-and-development and aggressive international competition.

Chrysler Mercedes Benz as a new entity will comprise of 420,000 employees, twenty-four car and lighter truck assembly plants across six countries. However, with annual revenue of $189 billion it will have a ranking as the third-largest automaker company across the world. They however remained behind Ford and General Motors but were ahead of Toyota. The merger not only ensured reconciliation of two diverse corporate cultures but also ensured that a whole was greater compared to sum of parts. The successful takeover of the Chrysler by the German based company would ensure owning a 57 per cent of new company. This however questioned the future of Auto Pact between Canada and USA (Bennett 2015).  Under a thirty three  year old treaty, the automakers of North America could import duty free parts and vehicles from anywhere across the world while the foreign manufacturers like Daimler-Benz needed  to make a payment of 6.7 percent tariff.

As a mere coincidence, the day when Chrysler and Daimler-Benz announced the merger, Britain's Vickers PLC also decided to sell off Rolls-Royce Motor Cars to Volkswagen for close to $994 million. This made Vickers to move away from its earlier agreement of $813-million with the BMW. All such deals however had  one common thing that is the desire of  wringing further efficiency in an industry that face immense competition, reduced profit margins and stagnancy in the markets of the industrialized countries. Amongst the major automakers of the world, Chrysler acted as most successful in being accustomed to newer realities of auto business. The company’s near collapse in the year 1980 along with immense financial crisis in the beginning of1990s made the company in streamlining the operations from top down, thereby ensuring the elimination of the layers of the management along with implementation of a Japanese style team related to product development. The changes have however transformed Chrysler as one of the innovative and the nimble manufacturers possessing the capacity of introducing and designing new vehicle from the scratch in a matter of lesser than thirty-six months (Bouwman 2013). This implied faster manufacture in a year compared to the North American rivals. The popularity of the four wheeled sport utility vehicles drive along with the minivans made the company a world leader in term of the profitability per vehicle. The merger also offered potential advantages for Mercedes Benz as it enabled them in adopting renowned efficiency and speed of Chrysler. These qualities will help the company in rubbing off its risk averse and slower phase.

Figure 3: Graphical Representations of the Value of the Deal

Source: (Bennett 2015)

Nissan Renault 

In the year 1999, Nissan and Renault signed an agreement that acted as an alliance between two of the biggest automobile companies. The alliance ensured benefits to both the parties (Stahl and Brannen 2013). At the time, Nissan was in dire need of cash reserves for paying off the interest payments that the Renault was able to provide. Besides, the alliance also enabled Nissan in entering the automobile markets of the United States and Europe. Further, Nissan was able to gather the technological knowhow of the smaller compact cars manufactured by Renault. On the other hand, it helped Renault in penetrating the Asian markets that it was unable to do previously. Renault was also able to add some of the specialized product lines of Nissan that included the larger and the commercial passenger cars. Besides, Renault was also able to learn the technological excellence of Nissan in the manufacturing process. Therefore, the alliance acted as strength for both companies and helped them in the right manner. Thus, by the end of the year 1999, Renault Nissan acquired the fourth ranking in automotive industry in terms of the total output of about five million automobiles thereby grasping over 9 percent of the worldwide market.

Figure 4: Graphical Representation of Share Prices of Nissan that Drove the Alliance

Source: (Stahl and Brannen 2013)

Conclusion: 

On a concluding note, one can however say that merger and alliances formed between two automobile giants acts beneficial for both. This has been quite evident from the merger that took place between Chrysler and Mercedes Benz and the alliance formed between Nissan Renault. Through the report one can find how the concept of the world car contributes in designing automobiles keeping in alliance with the global markets for automobiles. The report also tries giving an insight into the contributions made by Henry Ford of Ford Motor Company and Alfred P Sloan of General Motors, two of the biggest automobile manufacturers.

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