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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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History of the Automobile Industry

 Although the first automobiles were created in France and Germany in the late 19th century, the United States quickly took over in leading the auto industry through the 20th century. Thirty American manufacturers produced around 2500 cars in 1899, and then approximately 485 companies entered the auto industry in the next decade. “In 1908, Henry Ford introduced the Model T and William Durant founded General Motors” (, 2010).

The Ransom E. Olds Oldsmobile was designed in Europe in 1901, and was sold largely to an American market. The car sold for about $650 US dollars, which allowed many middle-class Americans to purchase the car. The Oldsmobile sold approximately 5,508 units. Because of this spike in sales, the United States began to target middle class Americans as a market for their cars. One problem the American auto industry had was the technology leaders were using to produce cars to sell at market. Around 600,000 automobiles were produced in the year 1913, and of those 600,000, around 485,000 of those vehicles were produced by American manufacturing companies.

Henry Ford, General Motors and Chrysler were considered to be the three leading automobile making companies through by the early 1920s. One of the biggest advantages the American auto-industry had at the time was Ford's assembly line manufacturing system and his “mass production techniques” (, 2010). While we saw more than 250 automobile manufacturers active in the American market in 1908, the number dropped to only 44 in 1929. Sales dropped tremendously during the Great Depression, and most cars that were sold during this time were bought on credit.

During WWII, the American automobile industry was largely responsible for producing military vehicles (in fact, they produced several million of them). Of course, gasoline was rationed during this war, so car sales dripped dramatically. The United States continued to carry the auto industry and become the leading producer through the 1980s.

“In 1980, 87.2 percent of American households owned one or more motor vehicles, 51.5 percent owned more than one, and fully 95 percent of domestic car sales were for replacement. Americans have become truly auto-dependent” (, 2010).

Current and Expected Sales

Of course, the American auto industry is arguably one of the most profitable industries existing in America today. Historically, the American auto industry has had a few marginal sales drops, both during the Great Depression and during the second World War. Currently, the American motor manufacturers are booming. In a time where Americans are taking pride buying cars made in the USA, and there is a large market for cars made in other countries but sold by American manufacturers, the American auto industry can expect a large increase in sales to begin with. Americans are constantly buying cars for new drivers, and to replace old rides. In a time where technology is steadily increasing and important safety features among other features like gas mileage are improving, the industry has no issue marketing cars.

While competition in the industry is fierce, large established manufacturers like Ford and Toyota are set to sell cars steadily in the future. Over the past five or so years, the industry has put a huge concentration on safety advances, and on using technology to advance safety methods that have already been established. While the emphasis on safety is increasing, and companies are targeting parents with new drivers, safer cars are, as expected, seeing sales jumps.

Herfindahl Hirschman Index

As for the Herfindahl Hirschman index, predictions are made that anticipate an increase in sales in technologically based vehicles with safety advances. While this prediction is not made for the next year or so, many leading investors believe within the next five or ten years consumers will exchange older vehicles for new and improved models. (Korus, 2016). The estimation is that electric vehicles will be able to be produced even more quickly and safely than they are now, because they have both fewer and more simple parts than ICE powered vehicles.

Among this estimation lies the prediction that electric vehicles will become cheaper than normal ICE powered vehicles, and the incentive to buy is higher than ever. Because of the environmental awareness that has seemingly overtaken society lately. Korus writes in his article, The Automotive Industry is on the Threshold of Massive Consolidation

“While the CEO of Chrysler already is calling for an automotive consolidation to combat rising developmental costs from stricter emissions standards, ARK anticipates a completely different scale of consolidation.” (Korus, 2016).

Financial Statements

There are a few important characteristics when it comes to reading financial statements for large corporations. Understandability, relevance, comparability and reliability are all aspects of financial statements that need to be considered when someone is thinking of investing in a corporation or firm. Larger corporations, especially those in the auto industry like Toyota, have pressure on them to follow guidelines exactly, and are audited often to ensure reliability. Another major characteristic for financial documents is comparability. It is important that a consumer is able to compare financial statements between years for the same firm. If a consumer were to pull up the Income Statement for Toyota, years 2013-03 to 2017-03 pull up. The consumer would be able to compare revenue from year to year, or operating income from year to year. For example, the operating income for Toyota in 2014 was $2,292,112. The operating income for Toyota in 2016 was $2,983,971. This easily and reliably shows an increase of $691,859 from 2014 to 2016.

The relevance of all of this information is also as important as the comparability. Toyota's information on both the Income Statement and Balance Sheet is found to be reliable and relevant. If a consumer needed to find a basic weighted average earning per share for 2013 or 2014, they could very easily do so. If a consumer wanted information relevant to Toyota's inventory, they could do so on the balance sheet, and continue to compare the numbers year to year. Perhaps most importantly, all of the information on the Balance Sheet and Income Statement for Toyota is incredibly organized and easy for a consumer with no accounting or market economics background to understand.

Financial Market Perspective

Toyota, Ford and Chevrolet are some of the biggest competitors in the American Market. All of these corporations are successful in their own right, and all of these firms have released financial statements to the public. While they all compete with one another, all of these firms continue to grow in the market place. Toyota has mass-produced the Toyota Prius, and other related models, expanding into the environmentally friendly market. Mitsubishi and Chevrolet have also released eco-friendly models, the all-electric 2016 i-MieV and the all-electric 2017 Bolt, respectively. Toyota, Ford and Chevrolet are all expected to grow and advance with the new technology that is becoming available in the American market place.

The automobile industry was hit pretty hard in the recession, but they quickly recovered after government intervention. The threat of new entrants to the market is especially weak considering how fierce the competition is and what a long time each of these companies took to establish themselves. The bargaining power of suppliers is also weak, because only a few specific suppliers are significant in size, and there is too much competition between suppliers to bargain with large brands. Though switched is the bargaining power of buyers, and this is relatively strong because of how large the firms are and how much competition there is to supply to these brands. Brands have much more power than the suppliers do. As far as the threat of substitutes go, it is nearly non-existent. While taxis and buses or trains can substitute for owning your own car, taking a train or cab can sometimes be incredibly inconvenient, and those fares can add up!

Competition in the automotive industry is incredibly strong, and exit barriers are very high.

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