The competitive imperative of expanding scale economies, pushes large as well as medium-sized, and even smaller sized automakers to evaluate a lot of different choices, including all the following, except for _____.
As the first estimates of worldwide car sales of the begin trickling in, Toyota, when its production is combined with that of its affiliates Daihatsu and Subaru, is on the brink of becoming the first member of the “10 million club.”
It will swiftly be followed by GM and Volkswagen, both of which are also enjoying continued growth, especially in the world’s largest car market, China.
Makers of luxurious models with strong brands, such as BMW and Jaguar Land Rover, can do well selling relatively small volumes of cars for handsome profits. But despite rising sales in America and Britain, and the apparent end of an 8x-year downturn in continental Europe, life is getting tougher for the squeezed middle, selling mainly mass-market models at profit margins that are slim at best.
There are plenty of reasons why size matters in the automobile industry. Besides the obvious economies of scale and stronger bargaining power with suppliers, being big makes it easier, especially with today’s flexible production lines, to offer an ample product range that can exploit every niche in increasingly every market around the world.
Moreover, the biggest car making groups are better able to spread the heavy cost of complying with ever-tougher environmental regulation in the largest economies.
The competitive imperative of expanding scale economies, pushes large as well as medium-sized, and even smaller sized automakers to evaluate a lot of different choices, including all the following, except for _____.
A) Engage partnerships to share the costs of specific technology; developing the platforms that underpin vehicles or new engines, for example, allows carmakers to share costs and risks. Partnerships help medium-sized car firms looking for ways to plug gaps in their product ranges and technology or to reach new markets. Such technology agreements are a good way of making barely profitable models that car makers are producing, with reluctance, only to comply with emissions regulations.
B) Get big by merging; for example, on January 1 Fiat struck a $4.35 billion deal to buy the 41% of Chrysler it did not already own. Even the merged Fiat-Chrysler will produce only 4m cars. Fiat will dip into Chrysler’s cash pile to finance a new range of models in the hope of boosting annual sales to 6m vehicles and to increase the proportion of profitable premium cars it sells from its sporty Alfa Romeo and Maserati ranges.
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