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Running head: DAIMLER 1

Name

Daimler Analysis

University Affiliation

DAIMLER 2

Mercedes Benz Analysis

1. Basic description of the industry

The automotive industry can be defined as a wide range of organizations and companies

that design, develop, manufacture, market and sell automobiles. The industry’s main activity is

the provision of means of transport to people. The industry manufactures private cars,

commercial vehicles and any other self-propelling machinery. These products make it easy for

people to move from one place to another and transport their language. For example, a person

can move from one point to another easily with a car than on foot. Travel efficiency is the main

objective of many automotive manufacturers. They seek to make human movement more

efficient and easier. The main products for the automotive industry include light trucks,

passenger automobiles, sport utility vehicles, vans and pick-ups.

The global automobile industry is big enough with sales topping seventy million cars in

2015 (Becker, 2015). According to the KPMG executive survey of the automotive industry, the

number of cars sold globally is likely to go up as more people become more economically stable.

This shows that the industry is big enough to accommodate several manufacturers and facilitate

their growth. Additionally, as more countries develop in terms of infrastructure, more people are

likely to purchase more cars and thereby drive growth in the industry. By the end of the year

2020, global car sales may top the hundred million mark (Becker, 2015). This illustrates the

potential of the global automotive industry. One of the major advantages of the automotive

industry is that manufacturers can manufacture or assemble cars almost anywhere in the world.

Most automotive companies such as Mercedes have several manufacturing and assembly plants

in various parts of the world. This enables manufacturers to reduce the costs of manufacturing

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and transporting their products. Some companies manufacture various components of the product

and then assemble the vehicle in the country where it is required. This provides a great advantage

to manufacturers because it reduces the chances of loss due to damages and reduces the costs of

transporting complete products. Some manufacturers also transport complete motor vehicles

depending on the distance from the manufacturer to the buyer. The most common channel of

distribution in the automobile industry is through dealers. Automotive companies nominate and

appoint dealers who sell their cars directly to the customers. These dealers may provide other

services such as servicing the vehicle depending on the agreement between the automotive

company and the dealer.

The automotive industry is considerably competitive. The industry is comprised of

several manufacturers who manufacture similar or almost similar products. Companies such as

Toyota, Ford, Mitsubishi, BMW, and Jaguar Land Rover are among the major automobile

manufacturers in the world (Becker, 2015). These companies are highly competitive and always

endeavor to attract more customers by manufacturing more innovative motor vehicles to meet

the customer needs. These companies compete for customers by focusing on the various drivers

of demand in the automobile industry. One of the major drivers of demand in this industry is

cost. Various motor vehicles have different costs depending on size, quality and aesthetics

(Becker, 2015). An increase or a drop in the cost of an automobile will influence the level of

demand in conjunction with other factors. For example, customers who buy Mercedes Benz cars

are not likely to leave the company because of a slight increase in price. This is because the pride

and the reputation associated with the company are very high. Additionally, the safety is another

major driver of demand in the automotive industry. Most manufacturers have realized that most

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buyers are concerned with their safety and are thereby focusing on making their products safer

for the customers.

The automotive industry is at the maturity stage. Maturity stage is characterized by

slowed sales growth and increased competition (Stark, 2011). The industry has been

characterized by extensive competition for a long period as the participants invent new

technologies to ensure that they increase their sales. The economic recovery is favorable for the

industry because more people have the ability to buy cars. However, buyers are more cautious

because of the uncertainty associated with the economy. If the economy recovers fully, the

automotive industry is among the industries that will benefit greatly. Additionally, the

demographic trends will most likely favor the industry. According to the center for global

development, the world population will hit the nine billion mark (cgdev.org). This means that the

population is growing at a very high rate and more people will be seeking for a means of

transport. In addition to economic and demographic trends, social and cultural trends have an

effect on the automobile industry. According to Singh (2014), the future of mobility is likely to

be influenced largely by the need for seamless travel from one point to the other. Additionally,

social innovation where companies aim to innovate to zero in the real world will also have a

major impact on the industry. For example, the need to develop and manufacture cars that do not

have any emissions will be the next big trend in the automobile industry.

In addition to the factors mentioned above, technological advances play a major role in

the automotive industry. Automotive companies engage in continuous research and development

to ensure that they remain competitive in the market. Fuel consumption and efficiency is a major

problem in the automotive industry and companies are always researching and developing new

ways of ensuring that customers have vehicles that consume fuel efficiently. Additionally, the

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political factors affect the automobile industry. The political conditions both at home and abroad

have a significant effect on the industry. Many politicians and governments are pressing for

sustainable development. This has led to the emergence of environmental consciousness and

consequently the emergence of environmental movements. Automobile manufacturers have to be

conscious of these developments and this could be the reason why they have started developing

hybrid and electric cars in a bid to survive in the market.

Porter’s five forces

Threat of new entrants: the automotive industry is very specific and this makes it difficult for

new entrants to enter the industry. The industry is also capital intensive. For example, an investor

has to build a manufacturing facility, procure labor for the facility and acquire the latest

technologies involved in the manufacturing process. This reduces the threat of new entrants

considerably.

Buyer power: buyer bargaining power influences industry profitability in the sense that buyers

have the ability to bargain for lower prices and high quality products. This could be costly for a

manufacturing company and thereby reduce profitability. The bargaining power of automotive

customers is considerably high because factors such as appearance, class, environmental

consciousness and quality affect consumer decisions.

Supplier power: the amount of control held by suppliers over prices and quality of raw materials

can be defined as supplier power. The fact that various components are involved in

manufacturing an automobile reduces the amount of buyer considerably. It would be difficult for

a supplier of one component to control the price or the quality of his/her component.

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Competitive rivalry: the automotive industry faces a considerably high level of competitive

rivalry. In spite of the fact that the threat of new entrant is low, the existing manufacturers are

considerably competitive. Almost every automobile manufacturer has every class of

automobiles. This makes the competition very fierce as the manufacturers seek to maximize their

market shares.

Threat of substitutes: the threat of substitution is considerably high in the automobile industry

because cars provide similar solutions. This raises the functional similarity and thereby makes it

easy for a customer to buy a different product. However, the product image plays a major role in

the automobile industry.

The industry’s main cost drivers include raw materials and labor. According to Kallstrom

(2015), raw materials consume more than forty-five percent of a company’s resources in the

automobile industry. Direct labor consumes more than 20% of the company’s resources. Other

factors such as administration, research and development, logistics, and administration share the

remaining forty percent (Kallstrom, 2014).

Opportunities

The automotive industry presents numerous opportunities for manufacturers. The rising

demand for luxury cars provides one of the major opportunities in the market. Companies can

generate revenues by manufacturing luxury cars that suit the needs of the customers.

Additionally, the emergence of environmental consciousness provides opportunities for

automobile manufacturers. Companies that will be able to develop environmentally friendly cars

can reap the benefits through increased sales and better reputation. Additionally, the developing

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world provides more opportunities for manufacturers. The developing world has a considerably

sized middle class, which provides numerous opportunities for automobile manufacturers.

Threats

The increasing importance of sustainable development could pose a major threat for

many automobile manufacturers. This is because most of them manufacture vehicles that use

fossil fuels to run. Fossil fuel have been identified as a major source of environmental pollution

and this raises the importance for manufacturers to make vehicles that use other sources of

energy to run. Additionally, more customers are conscious about their safety. Product recalls

pose a major threat to manufacturers as they increase the costs of operation.

2. Organizational analysis

Daimler is an automobile manufacturer based in Germany. Carl Benz and Gottlieb

Daimler founded the company in 1886. Since then, the company has been producing high quality

cars that have continued to shape automobile engineering to date (daimler.com). The company’s

motto is “The Best or Nothing”. Over the years, the company has been building and

experimenting various drive systems in a bid to manufacture emission free automobiles. The

company has production facilities in Europe, Africa, Asia, North and South America.

Additionally, the company has dealers in many countries all over the world. The company’s

brand, Mercedes Benz, is a premium brand in the world of automobiles. Daimler has more than

two hundred thousand employees. The company sold more than two million automobiles in 2014

(daimler.com).

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Financial analysis

The company has generated considerable revenues over the years and has remained one

of the most successful automobile companies in the world. According to its 2014 financial

reports, the company generated 129.9 million euros in revenues. Additionally, its Earnings

Before Interest and Tax (EBIT) totaled 10.8 million euros (daimler.com). Compared to industry

performance, the company has been performing well for the last year and the trend is bound to

continue in the future.

Strengths

As seen above, the company has been performing well in terms of finances and this

means that one of its strengths is its financial capability. Additionally, the company has a good

reputation. It has a very strong brand name, which drives many of its customers to stay with the

company. The Mercedes Benz brand is recognized all over the world as one of the most

prestigious and safe automobile brands. Further, the company has several product lines, which

add to its operational efficiency and profitability.

Weaknesses

One of the major weaknesses of the Daimler group is the high maintenance of its

products. For example, many people avoid buying the Mercedes Benz cars because of their high

maintenance costs.

3. Recommendations

1. Engage in R&D in a bid to develop more environmentally friendly vehicles

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2. Invest more resources in making more affordable car to increase the market share.

3. Maintain the high quality of products to reduce customer turnover because of the availability

of substitutes.

4. Seek to maximize profits by targeting the emerging markets in the developing world.

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References

Becker, D. (2015). KPMG’s Global Automotive Executive Survey 2015. KPMG International.

Cgdev.org. (2015). Global Demographic Trends. Retrieved August 5, 2015, from

http://www.cgdev.org/page/global-demographic-trends

Daimler.com. (2015). Overview: Company | Daimler Company. Retrieved August 5, 2015, from

http://www.daimler.com/company

Kallstrom, H. (2015, February 5). Raw materials – the biggest cost driver in the auto industry.

Retrieved August 5, 2015, from http://marketrealist.com/2015/02/raw-materials-biggest-

cost-driver-auto-industry/

Singh, S. (2014, May 12). The 10 Social And Tech Trends That Could Shape The Next Decade.

Retrieved August 5, 2015, from

http://www.forbes.com/sites/sarwantsingh/2014/05/12/the-top-10-mega-trends-of-the-

decade/

Stark, J. (2011). Product lifecycle management: 21st century paradigm for product realisation.

London: Springer

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