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Big3RoarBack Case Analysis
Big3RoarBack Case Analysis
Team No: 7
Members:
Context/Background:
The city of Detroit had seen a stable economic growth due to its booming automobile sector. The
“Big 3” – Ford Motor Company (Ford), General Motors (GM) and Chrysler of the US automobile
industry had presence in Detroit, each offering steady flow of economic and health benefits to its
working population. The industry however saw a decline in the period of 1970 due to the rising oil
prices and foreign competition leading to loss of market share of Big 3. However, 3 years starting
from 2008 the Big 3 saw a turnaround reestablishing themselves as major players in the market.
The challenge for the firms to stay competitive is to obtain competent workforce as the city had seen
a loss of population following the decline in 1970s. The case analysis the studies the actions that led
to the turnaround of the Big 3 and provides suggestion for future growth in the light of
transformation of US Automobile industry.
1. Industries core activity includes production and selling of 4-wheeler automobiles and truck-
based vehicles, like pickup trucks, sports utilities and minivans. As per the case, the industry
is facing a threat of obsolescence of 4-wheeler vehicles from more fuel-efficient models of
foreign players. Truck based category however is protected due to exemption of fuel-
economy regulations.
2. Industry core assets includes its brand value, technology and competent workforce. The
foreign players provide better technology products leading to threat of obsolescence of this
asset for the domestic players. As per Exhibit 2 in period from 2000-2009, the population of
Detroit has reduced and many of the competent workforce has migrated leading to shortage
of competent workforce
As the US Automobile industry is facing threat on both its core activities and assets, it can be stated
that it is in state of Radical Change
1. High dependency of the sector on international oil prices : The oil prices is dependent on
International factors and the domestic players have no control over them. Further they
exhibit equal impact on the players.
2. Foreign Competition: Emergence of low-cost fuel efficient alternatives from the foreign
players acted as a trigger for the Industry transformation. This coupled with rise of oil prices
led to the movement of consumer away from the Big 3.
3. Cost Control: Compared to their foreign competitor the domestic players incurred high cost
in terms of healthcare facility and wages that had to be provided to the workers. For
example: GM paid $2235 per vehicle on worker benefits while Toyota spent only $215.
4. Management Hubris: The management’s faith in their brand value coupled with complex
hierarchy slowed the decision making process in the organization. This led to lack of
innovation in products resulting in to loss of consumer faith.
1. As per the analysis, Automotive Industry is in the stage of Radical change. The reason for this
is increasing price consciousness of the consumer due to global changes in supply of oil and
increasing competitiveness from foreign market. The nature of Radical changes allows
industries with significant time for adjusting to change if measures are taken early. In case of
US Automotive Industry most players including both domestic and foreign players have
comparable market share as evident from Exhibit 1. Therefore traditional players will survive
as each has equal competitive advantage. Following measures however, will be suggested to
stay competitive:
- Reducing the number of variants and focusing on few cost-effective variants
- Explore possible chances of consolidation among existing players
- Increase plant utilization by redesigning to produce multiple models
- Developing R&D measures to develop more fuel efficient technologies
- Start training centers for reskilling the current population of Detroit
- Cultivating better relations with labor unions
- Make a marketing teams to ensure that consumer opinions are taken in developing
product
2. Benefits of Industry clusters:
Benefits from localization include sharing of sector-specific skilled labour, sharing of tacit
and codified knowledge, intra-industry linkages, and opportunities for efficient
subcontracting. Further, the presence of disproportionately high concentration of firms
within the same industry increases the possibilities for reduction of prices of intermediate
products. These location-based externalities imply that firms are likely to benefit from
locating near large concentration of other firms in their own industry. The presence of local
suppliers can reduce transaction costs and therefore increase productivity. Increase in
efficiency due to clustering can be seen from Exhibit 4
Exhibits