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Situational Analysis The Situational Analysis Demand and Demand Trends Global climate change bringing pressure to automotive industry to make right decisions in emission level targets, R&D and manufacturing Based on high cost, low profit margins Many companies making Hybrid cars; Ford already having the Escape Hybrid Uneven growth: demand for cars is growing in China, India, Eastern Europe Markets in US, Western Europe, Japan are flat/ declining Accelerated volatility: new cars that initially sell well may lose its ground within 2 years Customers have more choices than before; less loyalty In industry today must have higher degree of flexibility and responsiveness so suppliers can act quickly when volumes are not up to par Page 5

Technological Trends Advances in digital technology, wireless communication, processing technologies, and software have widened the dimensions of product development in the auto industry Experience with DVD-based rear-seat entertainment, voice-based navigation, and satellite radio systems. Power train, fuel combustion, crash protection, and the creation of a comfortable cabin and nearly wireless environment. Almost 100 sensors covering various car sections from under-the-engine hood to the exhaust stream ensure safe, clean, and economical vehicle operation (sensors account for almost 30 percent of the manufacturing cost of a car) While the benefits of some electronics are as cost-saving modules for the parts they replace, some others such as voice recognition and night vision systems have obvious marketable advantages. Using multimedia delivery platforms and user-friendly voice- and touch-screenbased human-machine interfaces. Provide entertainment to passengers / improve navigation by sharing data across components in the car Advanced electronics also control a cars subsystems to improve the driving experience or make the car more efficient.

Social and Cultural Factors United States The US has improved its focus on the environment, particularly in fuel emissions for many cars. The Obama CAFE Standards (Corporate Average Fuel Economy)

was passed on May 19, 2009. The new national policy stresses an increase in fuel efficiency and limitations on greenhouse gas emissions for all light trucks and SUVs starting 2012. All car models from 2012-2016 will have to adhere to the policy of a fuel-economy standard average of 35.5mpg (39.9 mpg for cars and 30.0 mpg for light trucks and SUVs). By passing this new policy, it is expected to save the US 1.8 billion barrels of oil from 2012-2016, along with a 900 million metric ton reduction in C02 emissions---the equivalent of taking 177 million cars off the road (West 2). Consumers are stressing the need for more Car Safety Features. Many American consumers are looking for more added car safety features for new vehicles. As a result, manufacturers are coming out with collision mitigation systems which are technologies that help drivers from hitting objects or help to avoid collisions (West 2). The economy has taken a downturn, beginning in the fall of 2008. As a result, many Americans have focused more on staple needs and less on luxury items such as new cars. The unemployment rate is expected to remain high even by 2015 and this could affect car sales (Bradsher 2). China

In China, there is a rising middle class that can afford to purchase cars and other items. This is due in part of the increase in money and per capita experienced by the Chinese economy. A vast majority of individuals in China prefer to purchase SUVs or sport SUVs because it is a symbol of power and wealth. There was a 50% increase in sales for SUVs from the previous year (Stern 2). The Chinese Government has increased the demand for cars by cutting taxes for new vehicle purchase and offering subsidies in rural areas to help mitigate the recession.

Demographics Focus more on China Sold 23,616 units in China Expanded growth in market will mean more prevalence in Chinese market Over 4.1 million passenger cars sold in 2006; 25% growth increase in auto sales Estimated 600 million middle class citizens in Chine by 2015 Over 80% of middle class has 3,000 yuan or $440 USD Annual income between 60,000 yuan 500,000 yuan Focus more on European markets

Economic and Business Conditions

China In recent years China has become the fastest and largest growing country and economy in the world after the Unite States. Over the past 30 years Chinas GDP has grown over 10% and will continue on that rate for many more. There are still discrepancies between the social classes; finally the middle class is growing rapidly due to the industrial, agricultural and global growth of the country. Since the 70s the country had put efforts forth to reform the economy such as foreign investments and permitting trade. With the three markets Ford is targeting for the Hybrid Sport Edge, China will be the economy whose purchasing power will be the highest. Europe Western Europe economy though was hit with the global recession has always been stable compared to Eastern Europe and many other countries. Countries such as the United Kingdom, Germany and Italy are currently battling inflation, rising prices for food, and energy and the unemployment rate is rising. By 2013, the economy should be turning around; however it is not likely that Europe will be in a much better place. This is all due to the sub-prime mortgage problem that started in the United States. United States For the past two years, the United States has been fighting the consequences of the schemes and lies of the subprime mortgage crisis that ended up hurting the global economy. Finally, the unemployment rate has started to drop, and the economy is slowly starting to turn around. The state of the automobile industry in 2013 will be at a similar point because the economy by then still will not have made a huge improvement. The

gap between expansion and contraction in the US is growing even larger, meaning the economy is taking its time. Legal Environment Governments such as in the United States have now taken into consideration the importance of safety regulations and eco-friendly products. We have a social responsibility to take care of the environment and hybrid and electric cars are the answer. There will not be a significant gain in hybrid auto sales by 2013, however research has proven that within 10 to 20 years, individuals will come to realize the personal and environmental benefits of owning a hybrid vehicle. Media Environment Automotive companies on average spend $50-$100 million on marketing/advertising Ford Spends about $80 million Money goes towards Social websites, their website, print, television/commercials, radio, outdoor campaigns Specific Media works with a number of Fortune 500 brands including seven of the top 10 companies. No other media company gives advertisers the ability to reach their target audience online with nearly 100% accuracy. Specific Media is headquartered in Irvine, California, with offices in New York, San Francisco, Los Angles, Chicago, Dallas, Detroit, and Fort Lauderdale.

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1. Political Environment: The Indian automotive industry has ourished like never before in the recent years. This extraordinary growth that the Indian automotive industry has witnessed, is a result of a two major factors namely, the improvement in the living standards of the middle class, and an increase in their disposable incomes. Moreover, the liberalization steps, such as, relaxation of the foreign exchange and equity regulations, reduc- tion of taris on imports, and rening the banking policies, initiated by the Government of India, have played an equally important role in bringing the Indian Automotive industry to great heights. It is estimated that the sale of passenger cars have tripled compared to their sale in the last ve years. Thus, the sale of cars has reached a gure of 1 million users and is expected to increase further. Its also to be noted that the demand for luxurious models, SUVs, and mini-cars for family owners, have shot up, largely due to increase in the consumers buying capacity. The increased demand for Indian automobiles has resulted in a large number of multi-national auto companies, especially from Japan, U. S. A., and Europe, entering the Indian market and working in collaboration with the Indian rms. Also, the institutionalization of auto- mobile nance has further paved the way to sustain a long-term high growth for the industry. 2. Economic environment: PEST analysis is concerned with the environmental inuences on a business. The acronym stands for the Political, Economic, Social and Technological issues that could aect the strategic development of a business Identifying PEST inuences is a useful way of summarizing the external environment in which a business operates. However, it must be followed up by consideration of how a business should respond to these inuences. 3. Social Environment: The demand of cars has been fueled by following factors : Increase in percentage of working women has increased number of earning members in a family. Alternate Fuel: increasing use of CNG and LPG instead of conventional fuel has made the entry of new kinds of vehicles in the market. Advent of Internet: The customer can now use the Internet to place the order and expect the manufacturer to fulll his customized demand in the minimum time. Electric Car: With technological advancements electrical car may emerge as a preferred option . Institutionalization of automobile nance has become important factor for sustainable growth.

 Car industry is gaining exports orientation due to foreign investment and delicensing. Increase in money supply would ensure a reasonable demand for cars. Car industry is a growth industry which is sustainable. The changing lifestyles indicate an increase in demand for cars in the all the segments and especially mid-price segment The changing buying behavior shows preference for styling, comfort, fuel eciency and conformance to environmental standards Technologically the industry is experiencing major changes like alternative fuels , customization etc. Intense competition is indicated in the coming years due to increase in market players. The concept of value has been widened up to include customer care.

Political factors

Political factors highlight the probable government laws and regulations, security measures and restrictions that can apply to the industry as a whole. The probable factors that affect the automobile industry are: 1. Laws and regulations had affected the automobile industry since its outburst. These laws generally revolved around the environmental norms that were to be fulfilled by any car industry. Thus the car manufacturers had to take care of the environmental issues during manufacturing of cars. 2. Taxes and government foreign policies are critical for the automobile industry. The foreign policies help to us decide the probability of success in the global market. 3. Introduction of new schemes in the US and Europe automobile industry wherein regulations led to produce high mileage cars along with increase in automobile sales and production (Hill, 2008).

Economical factors

Economical factors related to the exchange rates, economic growth globally and the business setting prevailing in the industry. Economic factors for the industry are: a) There was excess capacity of cars produced thus giving rise to high amount of revenue in marketing and new product designs. Thus there was lot of revenue withheld even though demand was less than supply. For example the UK auto market had excess 80% capacity in 2003 which freeze 1.3 billion euro of the automobile industry (autofacts, 2004). b) Total increase in the GDP globally from 2.0% to 3.1% in the year 2008 (statistics, 2008). c) Decrease in the exchange rate if euro has hampered the European car makers in a big way (Allen, 2006). d) Economic downturn in the US market (Copper, 2008)

e) Surplus capital and buying power in the developing economies like India and China and their personal emergence in the global market place.

Social factors

Social factors include the changes in cultures and demo graphics globally apart from change in buying pattern and capacity of the consumer. Social factors having an impact on the auto industry are:

Changes in the customer predilection from car being a status symbol to fuel efficiency and low emission cars. Changes in buying pattern of the consumers due to recession in mature markets. Environmental issues and awareness of the harmful emissions through automobiles

Technological factors
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Increase in use of technology to gain a clear competitive ad vantage Use of new and sophisticated design to overcome the decreased margins in the industry. Modifications or restriction on technology causing environmental pollution Increasing effect if awareness of global warning, greenhouse effect and burnout among patrons (organization, 2008) Shift in consumers tastes and preferences towards use of more ecofriendly cars, hybrid cars, fuel cell cars etc. Stern application of the EURO norms set up to curb pollution in developing countries.

Environmental factors
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Legal factors
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Restrictions and strict pollution norms set up in European and US markets Strict implications of the EURO norms in developing countries e,g, formation of BHARAT norms on the lines of EURO norms in India(CEN, 2006)