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Auto Competition

When an auto manufacturer needs to cut costs it will sometimes look for help from another manufacturer. This process results in a merging between companies in order to benefit one another. Companies may merge to be cost efficient or even to gain entry into another market segment. Either way, manufacturers try to gain instant results by merging. Auto manufacturers compete with each other to give consumers the state of the art safety systems that they demand. Parents are becoming more concerned about their family’s safety with the lifesaving abilities of airbags.

Consumers are looking at airbags as a very important option when making a vehicle purchasing decision. Not only must the automobile come equipped with one, but consumers also want a way to disengage the passenger side of the system if needed for children and infants. In the 1960’s, automotive safety began with a man by the name of Ralph Nader. In November of 1965 Nader wrote Unsafe at Any Speed: The Designed-in Dangers of the American Automobile. The target of this book was General Motors’ Corvair Nader claimed the rear suspension was faulty and made it possible to skid violently and roll over (Bollier).

After Nader made the public aware of safety concerns, automotive manufacturers started putting items such as power disk brakes as standard equipment on new automobiles. GM started impact testing and designed side beam guards in the late 1960’s (General Motors website). Nader’s continued crusading into the 1970’s made GM realize that it had to be proactive in the safety movement. The result of the movement was designing an airbag in 1973. Volvo had already introduced the airbag in 1972 on its 240/260 series (Volvo History).

Companies, realizing that Nader was not going to be disappearing anytime, soon decided to look for suppliers that were safety conscious. Automotive manufacturers began buying safety glass, which reduced injuries from large glass shards in accidents. The introduction of the steel belted tires reduced the amount of tire blowouts, which can lead to rollovers. In the 1980’s the public started to listen and jump onto Nader’s bandwagon. The public was demanding automobiles equipped with life saving safety features. GM introduced the rear lap/shoulder belt in 1986 as standard equipment.

Also in 1986 Volvo introduced a detachable seat for children up to the age of four. In the late 1980’s antilock brakes became optional equipment offered by most car companies. In the 1990’s airbags and antilock brakes became standard equipment on most automobiles. Crumple zones became a priority and were implemented to give added safety during an accident. The front and rear of the automobile crumple, accordion style, while keeping the cabin intact. Better day-time visibility was an issue, so daytime running lamps became a standard option for many manufacturers.

In the mid-nineties OnStar, a roadside assistance program, was developed for GM to be installed on Cadillacs. In the 1990’s, mergers became more important in the automotive industry, but for different reasons than in the decades before. In the 1940’s and 1950’s auto manufactures bought other automotive makers to eliminate competition and increase in size. This strategy worked in the formative years of the automotive industry because foreign competition was non-existent. People only had American companies to purchase from, so the automaker felt this was the best use of their money.

In the 1970’s foreign competition became stronger, but American companies still felt confident in their sales ability. Big American automotive mergers were limited in the 1970’s and 1980’s. Mergers are now taking place to gain entry into a different market segment. Companies now want to merge with automotive leaders in their respective market segments. Ford Motor Company wanted into the luxury car market, so instead of designing a new car it purchased Jaguar. If Ford had not bought an established luxury car company, it would have had to market a whole new automotive line that was not guaranteed to be successful.

Jaguar gave them instant credibility without the struggles of an upstart company. The global auto industry has been overcome with merger madness. Leading the charge was the union between Daimler-Benz and Chrysler. This merging changed the landscape of the global auto industry in one stroke. By joining together and combining forces, DailmerChrysler looks to bring formidable and muscle under one roof. To sum up it’s conquest, it wants to change the way the auto industry operates. However, in some merging feats companies like Ford only wish to gain an easy entry into a different market segment.

Merging allows for better cost effectiveness as well as easy entry into a specific market segment while instantly gaining a reputation. Cost effectiveness is gained when companies merge allowing them to share technology like engines, platforms, etc. In the merging of DailmerChrysler, Chrysler’s renowned low-cost production of trucks, minivans, and sport-utility vehicles will be called upon to cut costs. This saving is expected to be around $3 billion annually, including $1. 1 billion in purchasing costs alone (Hughes).

Chrysler Corporation has shared engines as well as production facilities with Mitsubishi Motors for several years. In the past Chrysler borrowed the 3. 0 liter six cylinder engine from Mitsubishi for its minivans. Currently, Dodge Stratus and the Mitsubishi Eclipse share the same engine as well as production lines in an effort to cut costs. According to Jacques Nasser, Ford Motor Companies president, “The next big efficiency isflexibility between vehicles. You are not retooling, redesigning and remanufacturing every part. ” Ford is looking to cut the number of platforms they use from 32 down to 17 by 2003 (Welch & Howes).

Nasser also states that in the coming years the automotive market will demand greater building flexibility between models to build off the same foundation. One example of this is the case of Audi and Volkswagen, where one frame platform serves seven automobiles. Cost efficiency is not the only goal of auto manufactures in today’s merging feats. Another main reason is to gain entry into a certain market segment. Starting up a new product line has tremendous costs associated with it. Also, it is difficult to convince buyers that it can produce quality cars in another particular market segment.

By merging with another company, a company can build upon it’s know reputation. Ford says Lincoln stands for “American luxury”; Volvo means “thoughtful” and “understated”, Jaguar suggests “refined power”, and Aston Martin is a “most exclusive club” (Holstein). Ford is looking to these names to catapult them to the rank of the world’s dominant maker of luxury vehicles. In 1998 Ford sold 250,000 luxury vehicles worldwide and Volvo sold about 400,000. If Jaguar continues to expand and the numbers from Ford and Volvo are combined, Ford should be able to sell about 1 million luxury cars per year soon after 2000 (Holstein).

With all the merging and production it is very important for an automotive maker to avoid the mistake made by General Motors when it lost the definite identities between Chevy, Buick, and Oldsmobile. To Ford’s credit, it has maintained Jaguars original identity and kept the great reputation that follows it. Jim Mateyka, vice president of the auto practice at A. T. Kearney says, “It’s next to impossible to suddenly convince people after 100 years that Ford is a luxury car” (Holstein). All Ford had to do was purchase the name Jaguar and make the company better while at the same time gaining an instant reputation for luxury.

The auto industry started out designed to fit the need for transportation only. Safety was never a concern to the public due to the fact that automobiles were limited to a top speed of fifteen to twenty miles per hour. Auto manufactures were more concerned with cheaper production than safety. As speed increased and time moved on, safety concerns started to rise. These concerns led to the improvement of many safety features from seatbelts to the new “smart airbags”. Recent General Motors studies show that consumers rate safety as the number two item they look for when purchasing a new vehicle.

The first item consumers look for is price. “Safety is now something people want and expect in an automobile” according to Dee Allsop, a pollster and senior vice president of Wirthlin Worldwide, which assesses marketing issues for consortium of auto makers (ElBoghdady). The one safety feature expected in today’s automobiles is a state of the art airbag system. Airbags have become one of the most heated issues in the automotive industry. As airbags continue to reduce fatalities and prevent injuries, the consumer demand for airbags rises.

Estimated airbag life saving benefits calculated as of October 1, 1999 were that 4,011 drivers were saved and airbags while 747 passengers were saved (from NHSTA). As a result, car driver fatalities was reduced by 31 percent and car passenger fatalities reduced by 32 percent. Light truck driver fatalities was also reduced by 36 percent (from NHSTA). More people are becoming concerned over their children’s safety and are looking for and demanding safety features. This is making the safety technology departments race to make their company’s vehicles safer quicker (ElBoghdady).

The airbag demand has Ford installing as standard equipment side-curtain airbags installed in addition to the driver and passenger side airbag on the Focus and the 2002 Explorer. The passenger airbags on the 2000 Ford Taurus has sensors that adjust for a person’s height and sitting position. They will deactivate the front and side airbags in a low speed collision to avoid passenger injury. Even though airbags can save lives, they have been know to tragically take a lives, especially those of children. Safety is the top concern for baby boomers with children due to seatbelt and anti-drunken driving campaigns since grade school (ElBoghdady).

These tragic events have the consumers asking about extra safety features such as devices that deactivate the passenger side airbags for infants and children. Mercedes is now equipping some vehicles with a “baby smart system” to deactivate passenger-seat airbag if there is a special child carrier buckled up front (Consumer Reports). Consumers may purchase a special car seat from a Mercedes dealer, which is equipped with a sensor that triggers the “baby smart system” once installed in the front passenger seat.

The future of American safety technology may lie in the hands of General Motors. GM is expecting to match the European competition of Mercedes’ Tele Aid system by installing its own on-board global satellite positioning and hands-free cell phone service into their 24-hour OnStar system. When an airbag is deployed, a sensor uses the global satellite positioning to send a signal to the OnStar center to dispatch emergency personal immediately to the site of the vehicle. Ford is expected to start installing a similar system in the year 2001.

The future looks bright when Terry Connolly, director of GM’s North American Safety Center says; “There are opportunities in crash avoidance that are at some point going to become fairly dramatic. At some point in the future a crash will be a rare event (ElBoghdady). ” Merging is a highly effective means of automobile manufactures to become cost efficient. Savings may come from sharing engines, platforms, and production facilities. However, cost efficiency may not be the main goal for merging. Many times companies wish to enter another market segment when the opportunity looks promising.

For example, a company may wish to enter into the luxury market, but may not want to spend the money to design and start up production of a new line. Starting a new line may come with disastrous consequences if the new model does not fair well. Consumers may not wish to purchase the automobile if the manufacturer is not well known for luxury. The purchase of an automobile maker with a well-known luxury reputation gains instant access into the luxury market segment with instant name recognition and little risks.

Safety is a very hot topic as consumers are demanding safety options when purchasing a new automobile. Airbags are quickly becoming the biggest feature to lead the way in safety competition. With a high demand for airbags, there is also a high demand from parents to have a way to disengage the system to protect their children and infants. With airbags saving thousands of lives and reducing fatality rates as high as 36 percent, it is no wonder that consumers are so interested in demanding such a safety feature.

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