AUTOMOTIVE INDUSTRY ANALYSIS

AUTOMOTIVE INDUSTRY ANALYSIS











Submitted by Team A
Donald Bradley
Morgan Bruns
Adam Fleming
Jay Ling
Lauren Margolin
Felipe Roman





Presented to:

Prof. Alan Flury
December 5, 2005








ME 6753: Principles of Management for Engineers

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Executive Summary
Chosen industry:
This analysis focuses on the automotive industry, specifically, large-scale manufacturers of automobiles.
The automotive industry is inherently interesting: it is massive, it is competitive, and it is expected to
undergo major restructuring in the near future due to globalization and decreasing oil reserves. The
analysis team members (we) feel qualified to perform this investigation due to our familiarity with the
industry and our education—several of us have studied and worked on problems associated with
automobile manufacturing and we are all mechanical engineering graduate students.

Analysis Methodology:
The report begins with a historical overview of the automotive industry. This is followed by an analysis
of the industry’s structural characteristics using Porter’s 5 Forces Model as a framework, which provides
an understanding of the automotive industry as a whole in its current state. Next, ten representative
companies of varying sizes are analyzed and compared; the chosen companies and selection criteria
follow. General Motors, Ford, and Toyota were chosen because they are the current market leaders.
DaimlerChrysler, Nissan, Volkswagen, and Honda were chosen because of their status as stable
international companies who have been in the automobile business for many years. Hyundai, Maruti
Udyog, and Shanghai Automotive Industry Corp., based in Korea, India, and China, respectively, were
chosen based on their growth potential and their status as relatively new to the industry.

These ten companies are analyzed in terms of their market position, their financial situation, and their
management strategy. Where useful, specific statistics have been incorporated into the analysis
including: market share, return on equity, return on sales, revenues, net expenses, net income, market
value added, number of brands, number of models, debt rating, and debt ratio. The examination of the
industry as a whole and of some of the major players in the industry provides a good framework within
which insightful conclusions can be derived about the current state and future of the automotive industry.

Major Findings and Conclusions:
In the conclusions section, we identify and describe attributes of successful companies including:
production efficiency, well-planned cost structures, manageable size, distributed management of brands,
attention to underserved markets, focused strategy, and well-respected brands and products. We then
move from specific company attributes to identifying key trends in the automotive industry as a whole
including: international expansion, conglomeration in mature markets, distributed competition in new
markets, increased environmental regulation, increased energy constraints, and increased operational
efficiency. Using these trends, we predict where the industry is headed and how it will evolve to meet
new challenges.

The report concludes with the recommendation section, which provides a prediction of the near-future
success of each of the analyzed companies. The outlook is not great for any of the four well-established,
Euro-American companies considered in this report: DaimlerChrysler, Ford, General Motors, and
Volkswagen. Of these companies, we conclude that DaimlerChrysler seems to be holding up the best.
The future looks much more promising for the four Asian companies with international market reach that
were studied: Honda, Hyundai, Nissan, and Toyota. Toyota stands out as being best positioned for
success in the near future, while Honda will most likely continue to be successful on a smaller scale. And
although currently successful, it is much more difficult to predict the future success of Maruti Udyog and
Shanghai Automotive Industrial Company. Both companies remain mainly focused on the Indian and
Chinese markets, respectively, and thus lack the geographical diversity that smoothes the market
performance of some of their larger competitors.
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Table of Contents
Executive Summary ......................................................................................................................................ii
Table of Contents.........................................................................................................................................iii
1.
Industry Overview................................................................................................................................ 1
1.1.
History ......................................................................................................................................... 1
1.2.
Porter’s Five Forces Analysis...................................................................................................... 3
2.
Analysis................................................................................................................................................ 4
2.1.
DaimlerChrysler .......................................................................................................................... 4
2.2.
Ford.............................................................................................................................................. 5
2.3.
General Motors............................................................................................................................ 6
2.4.
Honda .......................................................................................................................................... 7
2.5.
Hyundai ....................................................................................................................................... 7
2.6.
Maruti Udyog .............................................................................................................................. 8
2.7.
Nissan .......................................................................................................................................... 9
2.8.
Shanghai AIC .............................................................................................................................. 9
2.9.
Toyota........................................................................................................................................ 10
2.10. Volkswagen ............................................................................................................................... 11
3.
Conclusions ........................................................................................................................................ 12
3.1.
Attributes of Successful Companies.......................................................................................... 12
3.2.
General Trends in Direction and Evolution............................................................................... 13
4.
Recommendations .............................................................................................................................. 14
References................................................................................................................................................... 16
APPENDIX A: Exhibits ............................................................................................................................ 20
APPENDIX B: Selected Financial Information......................................................................................... 27
APPENDIX C: Porter’s Five Forces.......................................................................................................... 29
APPENDIX D: Concentration Ratios in US Auto Industry....................................................................... 30





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1. Industry Overview
1.1. History
The evolution of the automotive industry has been influenced by various innovations in fuels, vehicle
components, societal infrastructure, and manufacturing practices, as well as changes in markets, suppliers
and business structures. Some historians cite examples as early as the year 1600 of sail-mounted
carriages as the first vehicles to be propelled by something other than animals or humans. However, it is
believed by most historians that the key starting point for the automobile was the development of the
engine. The engine was developed as a result of discovering new energy carrying mediums, such as
steam in the 1700s, and new fuels, such as gas and gasoline in the 1800s. Shortly after the invention of
the 4-stroke internal combustion gasoline-fueled engine in 1876, the development of the first motor
vehicles and establishment of first automotive firms in Europe and America occurred. See Figures 1 and
2 in Appendix A for a timeline of the automotive industry from 1895 to 2000.

During the 1890s and early 1900s, developments of other technologies, such as the
steering wheel and floor-mounted accelerator, sped up the development of the automotive
industry by making vehicles easier to use. Almost simultaneously, in America, the
societal infrastructure that would provide fertile ground for the proliferation of
automobiles was being set. Driver’s licenses were issued, service stations were opened,
and car sales with time payments were instituted. Famous vehicle models such as Ford’s
Model T were developed during these times and, by 1906, car designs began abandoning
Model T
the carriage look and taking on a more “motorage” appearance.

During the 1910s, the development of technologies and societal infrastructure continued
in addition to new manufacturing practices and business strategies. Traffic lights started
appearing in the U.S. and thousands of road signs were posted by B. F. Goodrich on over
100,000 miles of U.S. roads. Henry Ford’s famous assembly line was launched in 1913,
which allowed vehicles to be mass produced and thus achieved economies of scale. Ford
also introduced the concept of using interchangeable and standard parts to further enable
the mass production process. Automakers also started to merge with other companies
(e.g., GM acquired Chevrolet) and to expand to other markets (e.g., GM of Canada).
Ford Assembly Line
In the 1920s, the development of infrastructure, adoption of new manufacturing practices,
and the merging of companies continued (e.g., Benz and Daimler, Chrysler and Dodge, Ford and
Lincoln). In the U.S., the Bureau of Public Roads and the enactment of the Kahn-Wadsworth Bill helped
facilitate road-building projects and develop a national road system. In manufacturing, mass production
methods became better established, which led to the availability of a wide range of satisfactory cars to the
public. While Ford had focused on a single model, GM adopted a new production strategy for providing
greater product variety, which helped the company increase their market share by 20% and reduce Ford’s
by 24%.

In the 1930s, several new vehicle brands were developed (e.g., Ford Mercury, Lincoln Continental,
Volkswagen) and trends in vehicle consumer preferences were established that differentiated the
American and European market. In the U.S. market, consumers preferred luxurious and powerful cars,
whereas in Europe consumers preferred smaller and low-priced cars. Also during this time, GM’s
product variety strategy continued to give them a competitive advantage over Ford, allowing GM to
continue increasing their market share while Ford kept losing theirs.

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In the 1940s, during World War II (WWII), automotive factories were used to make military vehicles and
weapons, thus halting civilian vehicle production. After WWII, the economies of most European and
some Asian-pacific countries, such as Japan, were decimated; this required the development of new
production and business strategies such as those of Toyota, which began to develop what is now known
as Just in Time (JIT) manufacturing. Most of the first models produced were similar to the pre-war
designs since it took some time for the plants to revamp their operations to make new designs and models.

In the 1950s and 1960s, more technological innovations, such as fiberglass bodies and higher
compression ratio fuels, allowed vehicle developers to appease the growing consumer interest for vehicle
comfort, look, and feel. Car designs were highly influenced by emerging safety and environmental
regulations. Vehicle speed limits and front seat belts became standard, in addition to other features such
as heating and ventilation equipment.

The 1970s were marked by stricter environmental regulations and the oil embargo of the early 70s, which
led to the development of low emission vehicle technologies, such as catalytic converters, and a 55-mph
nationwide speed limit in the U.S. Foreign cars like the Japanese Honda Civic started appearing in the
U.S. market. The Civic was marketed as a fuel efficient and low-emissions vehicle, which given the
recent high oil prices and strict environmental regulations made it well-received. Despite the entrance of
new competitors into the U.S. market, U.S. automakers underestimated the threat of foreign automakers
to their market shares.

In the 1980s, the U.S. automotive industry began losing market share to the higher quality, affordable,
and fuel efficient cars from Japanese automakers. In response to this market share loss, U.S. automakers
began focusing on improving quality by adopting different Japanese manufacturing management
philosophies, such as JIT. Although their adoption of JIT and other philosophies helped improve the
quality of U.S. vehicles, it did not fully bridge the gap between the quality of U.S. and Japanese cars.
This gap remained because U.S. automakers tried applying JIT techniques without a full understanding of
the whole Japanese manufacturing system, while Japanese automakers had decades to develop, refine and
master their JIT approach.

Another significant paradigm of the 1980s was the global nature of vehicle manufacturing. Automakers
started assembling vehicles around the world. This trend was accelerated in the 1990s with the
construction of overseas facilities and mergers between multinational automakers. This global expansion
gave automakers a greater capacity to infiltrate new markets quickly and at lower costs. The increased
product offerings in many markets led to consumers having a greater variety of vehicles from which to
choose. To this new vehicle buffet was coupled the explosion of the internet, which made vehicle-related
information readily accessible to consumers. Internet-informed and empowered consumers now wanted a
vehicle that was “personalizable,” inexpensive, reliable, and quickly obtainable. Consumers desired
vehicles that were less harmful to the environment, which led to the introduction of hybrid vehicles by
Japanese automakers in the late 1990s.

In the current decade, the recent trend of increasing sophistication and empowerment of the consumer has
led automakers to identify new and more specialized markets within saturated markets with diverse
customer bases, such as that of the U.S. Another trend is to infiltrate new emerging markets such as
Southeast Asia and Latin America, which has further motivated the establishment of production facilities
overseas and the establishment of global alliances and commercial strategic partnerships with foreign
automakers. Of these new markets, China appears to be the most promising.

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1.2.
Porter’s Five Forces Analysis
Michael Porter identified five forces that influence an industry. These forces are: (1) degree of rivalry;
(2) threat of substitutes; (3) barriers to entry; (4) buyer power; and (5) supplier power. For more on this
framework proposed by Porter, please see Appendix C. Like other industries operating under free market,
capitalistic systems, viewing the automotive industry through the lens of Porter’s Five Forces can be
helpful in understanding the forces at play.

Degree of Rivalry
Despite the high concentration ratios seen in the U.S. market (see Appendix D), which typically signify
that a lesser degree of competition is seen in the industry, rivalry in the U.S. and the global automotive
industry is intense. Clearly, the concentration ratios do not tell the whole story. The automotive industry
in the U.S. is no longer the playground of the Big 3 (GM, Ford, and Daimler Chrysler); global companies
compete in the U.S. market, while U.S. companies have globalized themselves. In the 1980s, the
Japanese car makers Honda and Toyota entered a fairly disciplined U.S. market and have been very
focused in growing their shares of the market. The great diversity of rivals in terms of cultures and
associated philosophies has intensified rivalry in the industry. Market growth is slow in the established
markets of the U.S. and Western Europe, and companies must fight fiercely to eke out gains or prevent
losses in market share. However, growth is potentially huge in the rapidly industrializing nations of
China and India; in these booming markets, companies could take advantage of the opportunities to reap
handsome rewards. The degree of rivalry in the automotive industry is further heightened by high fixed
costs associated with manufacturing cars and trucks and the low switching costs for consumers when
buying different makes and models.

Threat of Substitutes
The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation
are available, but none offer the utility, convenience, independence, and value afforded by automobiles.
The switching costs associated with using a different mode of transportation, such as train, may be high in
terms of personal time (i.e., independence), convenience, and utility (e.g., luggage capacity), but not
necessarily monetarily (e.g., round trip train fare on MARTA would most likely be less expensive than
the cost of fuel consumed on a similar round trip, daily parking, car insurance, and maintenance).
The exception to this statement occurs in the global urban areas with high population densities. In these
areas, the substitutes available (e.g., walking, mass transit, bicycles, etc.) can be less costly than
automobiles and thus alternative modes of transportation are often preferred.

Also, there are inherent underlying social and cultural attitudes that keep people from owning
automobiles in some parts of the world. Many nations are not as spread out or as mobile as the U.S.; they
are constrained either by geography, race, class, or religion and the need for personal transportation is not
as great, yet. The American dream of “a car [or two] in every garage” is not what the rest of the world
currently wants or needs. However, the marketing arms of the global automotive manufacturers are
certainly working very hard to change this paradigm, and with unprecedented production volumes world
wide, all signs indicate that they are succeeding. Most with the ability and means to own a vehicle, who
live in a society with the necessary infrastructure (e.g., roads and fueling stations), will do so.

Barriers to Entry
The barriers to enter the automotive industry are substantial. For a new company, the startup capital
required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. An
automotive manufacturing facility is quite specialized and in the event of failure could not be easily re-
tooled. Although the barriers to new companies are substantial, established companies are entering new
markets through strategic partnerships or through buying out or merging with other companies. In fact,
the barriers to entry for new (or different) markets may be quite low; in the 1980s, U.S. companies
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practically invited Japanese makers into the U.S. by failing to offer quality vehicles in the lower price
markets. All of the large automotive companies have globalized and entered foreign markets with
varying degrees of success.

In the newer, undeveloped markets of Asia, Africa, and South America, the barriers to entry similarly
exist. However, a domestic start up, with local knowledge and expertise, has the potential to compete in
its home market against the global firms who are not yet well established there. Such an operation, if
successful, would surely be snatched up by one of the global giants and incorporated into its fold.

Buyer and Supplier Power
In the relationship between the automotive industry and its suppliers, the power axis is substantially
tipped in the industry’s favor. The automotive industry is comprised of powerful buyers who are
generally able to dictate their terms to their suppliers. There are specific characteristics that make
members of the automotive industry powerful buyers: (1) there is not a grand proliferation of companies
manufacturing automotives, and the four largest automotive companies in the U.S. have roughly 90% of
the value of shipments and value added in the U.S. (see Appendix D); (2) automotive parts (e.g., oil
filters, mufflers, belts, etc.) are standardized commodities and these parts are only used on automobiles;
and (3) backward integration can and does occur, as seen in summer 2005 when Ford purchased
struggling parts maker Visteon.

In the relationship between the automotive industry and its ultimate consumers, purchasers of finished
vehicles, the power axis is tipped in the consumers’ favor. Consumers wield the greatest power in this
relationship due to the fairly standardized nature of the automotive commodity (a vehicle) and the low
switching costs associated with selecting from among competing brands. However, the automotive
industry remains marginally powerful due to the large customer to producer ratio.

The automotive industry is a dynamic place. With the forces above at play, and with history as a guide, it
is safe to say that the automotive industry will continue to change, evolve, and adapt.
2. Analysis
In this section we investigate ten major companies in the automotive industry to gather a better
understanding of the automotive industry’s dynamics on a company-by-company basis. For insight into
the relative revenues and net incomes for 2004 for each of the companies analyzed, please see Figures 3
and 4 in Appendix A. Additional financial information for each of the companies may also be found in
Appendix B.
2.1. DaimlerChrysler
DaimlerChrysler (DCX) was formed in 1998 in a merger of two of the automotive industry’s oldest and
most prestigious manufacturers: Daimler-Benz AG and the Chrysler Corporation. This so-called “merger
of equals” was the culmination of a long complicated family history that in some sense follows the history
of the automobile itself. Because of this prestigious history, DaimlerChrysler enjoys a strong reputation
on both sides of the Atlantic.

Today, DaimlerChrysler employs a total of 384,723 people in 17 countries. Their products are sold in
over 200 countries. DaimlerChrysler is the fourth largest vehicle producer in the world in terms of units
sold behind GM, Ford, and Toyota. In 2004, DaimlerChrysler sold 4,000,700 passenger vehicles and
712,200 commercial vehicles. The company is structured into three main automotive groups: the
Mercedes Car Group, the Chrysler Group, and the Commercial Vehicles Division. These groups are
parents to a total of 12 different brands, including Mercedes-Benz, Dodge, Chrysler, Jeep, the luxury car
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Maybach, and the compact environmentally friendly smart car. In all, DaimlerChrysler produces
approximately 126 vehicle models.

DaimlerChrysler has been marginally successful in the United States where the Chrysler Group has
recently been the strongest of Detroit’s Big 3. In fact, during the third-quarter of 2005, Chrysler was the
only Big 3 company to earn a profit ($379 million for the quarter). This came in spite of a 21% drop in
third-quarter earnings by DaimlerChrysler worldwide due to increasing taxes. However, during this same
period, DaimlerChrysler increased operating profit by 38%. Analysts have attributed this odd result to
increasing demand for Chrysler and Mercedes products. This increased demand is evidenced in the U.S.
market where the Chrysler Group produces four of the 20 top selling passenger vehicle models: the
Dodge Ram, the Dodge Caravan, the Jeep Grand Cherokee, and the Jeep Liberty. As a result of this
improved third-quarter performance, Chrysler’s U.S. market share has risen to 13.3%. More broadly, the
popularity of DaimlerChrysler models can be seen in the steady rise in revenue over the past three years
(see Figure 5 in Appendix A). From 2002 to 2004, revenue has increased 22.6% from $157 billion to
$192 billion.

Because demand for DaimlerChrysler products has remained relatively stable in the face of increasing oil
prices, their future looks relatively bright. Growth in demand for passenger vehicles is expected to further
slow in North America, Western Europe, and Japan. Therefore, DaimlerChrysler’s future depends upon
successful marketing in emerging markets across the globe.
2.2. Ford
Ford Motor Company (F) was founded in 1903 by automotive and industrial pioneer Henry Ford in
Dearborn, Michigan. Being first to implement a moving assembly line for automotive manufacturing,
Ford was able to more efficiently mass produce their products than their competitors. In 1908 the Model
T was introduced and went on to sell over 15 million vehicles, firmly establishing Ford as the major
player in the early automotive industry with 50% market share by the 1920s. The company went public
in 1956 and since then has grown to be a significant presence in the global automotive market.

The Ford Motor Company product portfolio includes cars, trucks, and SUVs from the following brands:
Ford, Lincoln, Mercury, Mazda, Aston-Martin, Jaguar, Volvo, and Land Rover. In addition to its core
automotive business, Ford has a finance division, a parts and service division, and they also currently own
Hertz Corporation, the largest car rental business in the world. Relative to other massive automotive
manufacturers in 2003, Ford was number two domestically and globally (behind GM), in terms of number
of vehicles sold.

Ford’s outlook is challenging. In the 3rd quarter of 2005, Ford posted a pre-tax profit loss of over $1.3
billion in their Automotive operations, with a $1.1 billion loss in North America. The current losses for
2005 are due to a number of reasons: (1) rising costs of commodities, namely steel and energy, have
increased manufacturing costs considerably; (2) ongoing and rising health care costs, particularly ‘legacy’
benefits paid to retirees and their families; (3) bailing out major parts supplier Visteon from bankruptcy;
and (4) vehicle sales lagging by 81,000 units compared to the same point in 2004, in spite of
unprecedented “Employee Pricing” sales offered during summer 2005. Sales are especially lagging in the
profitable SUV and truck markets where demand is dropping due to escalating gasoline prices. This loss
is disappointing given the positive trend seen in net income for the past two years (see Figure 6 in
Appendix A). The negative net income seen in 2002 was due to the costly safety recall of defective
Firestone tires used on numerous Ford and Mercury trucks and SUVs.

Ford’s poor performance in 2005 and dark outlook were reflected in the downgrading of their credit
ratings by both Standard & Poor and Moody’s to “junk” status in late spring 2005 - from BBB- to BB+
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and Baa3 to Ba1, respectively. The volatility of Ford’s stock, in terms of its Beta rating, is in the
neighborhood of 1.6 which indicates that investing in their stock has fairly high risk. In the face of poor
performance and negative trends, significant steps must be taken in the near future to ensure the long term
viability of Ford Motor Company.

Elements of company-wide restructuring have been announced and implementation begun. Part of the
restructuring involves reducing personnel, mostly from white-collar positions. In more long term
restructuring, the company needs to shed over-capacity in manufacturing. Shedding over-capacity
involves closing down and consolidating manufacturing facilities. These closures are prevented by
agreements made with the United Auto Workers (UAW) through 2007. A key element in Ford’s success
is its relationship with the UAW and ability to get concessions from the union. Concessions over
healthcare costs, which cost upwards of $2000 per new vehicle sold, and plant consolidations are required
for Ford to be leaner, more efficient, and more cost-effective in its business.

In addition to organizational restructuring being vital to the future success of Ford, the company realizes
the need to reestablish their market share, particularly in the U.S. domestic market. They have begun
attempts to do this with the introduction of many new vehicles to freshen and invigorate their product
line. Ford has announced plans to increase its hybrid vehicle production tenfold to 250,000 per year by
2010. This could be viewed as an attempt to position itself as the domestic leader in the rapidly growing
hybrid market in the U.S.

If the organizational restructuring comes off well and new product offerings are a hit with consumers
Ford stands a good chance to see another 100 years as an industry leader.
2.3. General
Motors
After its organization in 1908, General Motors (GM) proceeded to acquire seven companies by the end of
1909. Today, the company’s brand names include many of the beginning acquisitions including Buick,
Cadillac, Chevrolet, GMC, Oldsmobile, and Pontiac, as well as newer acquisitions and creations
including Holden, Hummer, Opel, Saab, Saturn, and Vauxhall. GM is the largest automobile
manufacturer in the world, selling nearly nine million cars in 2004, which equated to a 14.5% global
market share.

As of the end of 2004, GM reduced its projected earnings for 2005 by over 50% from previous
projections, which reflects its low expectations for the company in the near future. Investors have also
lost faith in the future of GM; the current stock price is selling at a fraction of the book value. GM’s debt
has been steadily downgraded and stood at BBB- as of the end of 2004 according to Standard & Poor’s
ratings.

According to their Letter to Stockholders, GM’s main problems consist of “global overcapacity … falling
prices … rapidly escalating healthcare costs … unstable fuel prices … [and] increasing competition.”
The effects of these troubles can be seen quantitatively through the ratios provided in Table 1 of
Appendix A. GM’s debt ratio illustrates that their overall debt nearly equals their assets; their current
ratio shows that they have more liabilities than assets in the upcoming year; and the return on sales and
equity are very low in comparison to industry standards. Each of the five ratios places GM among the
worst three out of the ten sampled companies. While these ratios in no way provide a complete measure
of a company, they do illustrate that GM is currently struggling to keep up with its competitors.

GM’s main problem is their failure to remain cost-competitive in the global market. To address this, GM
has reworked deals with both American and European unions which will reduce its cost of labor. To
increase revenues, GM is focusing on increasing market share in growing countries such as India and
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China. They are also offering more hybrids to increase their fuel efficient offerings, which is a fast
growing market in America and has been one of the main ways that foreign manufacturers have increased
their market share in GM’s primary markets.

It will take some time for GM to become profitable again. In the first three quarters of 2005, GM has
seen losses continue to grow well past $1 Billion and their credit rating has been reduced to junk status.
However, GM still has the largest market share in the world and the capability to become successful
again. If GM can reign in escalating costs and offer cost-competitive products, the automobile giant will
be in position to once again assert its dominance of the market.
2.4. Honda
Honda Motor Co. (HMC) was established by Soichiro Honda in 1946. It originally began producing
motorcycles in the mid 20th century and began manufacturing automobiles (the Honda Civic) in 1972.
After the original Civic’s inception, Honda produced many variants of this highly successful vehicle, such
as the four-door sedan, wagons, hatchback, coupe, and more recently the hybrid. Honda currently has
two automotive brands (Honda and Acura) and it produces over 20 other vehicle models, such as the
Accord, Element, Insight, Odyssey Minivan, Pilot SUV, and Ridgeline Truck, in addition to producing
motorcycles and power products.

Since Honda began producing automobiles it has been a leader in producing fuel efficient and low
emissions vehicles. In 1977 and 1983, Civic models ranked first in U.S. fuel-economy tests. Honda has
also introduced hybrid vehicles such as the Insight, Civic, and Accord, in 1999, 2002, and 2004,
respectively, with the 2006 Insight being the most fuel efficient car of 2006.

Currently, Honda ranks sixth in sales within the automotive industry. They have overseas plants in over
12 countries including the U.K., Italy, Brazil, Taiwan, Indonesia, Malaysia, Thailand, Nigeria, U.S., and
Canada. Honda has been increasing their production capacity worldwide in response to their steady
growth in total sales over the last few years. From 2002 to 2003, Honda increased sales by 95,000 units,
and from 2003 to 2004, sales increased by 259,000 units. With this growth in sales Honda has seen a
commensurate increase in its revenues (see Figure 7 in Appendix A). In China, they saw approximately a
50% increase in sales from the fiscal years of 2003 to 2004, and they expect sales to keep increasing.

In the future, Honda has stated that they will keep improving the fuel efficiency of all their vehicles.
They will continue to expand their production capacity in Asia, due to the expected increases in demand
in those regions. In the U.S., they plan on launching new models targeted to younger people to create a
new base of loyal customers. Given Honda’s past record on delivering high quality and fuel efficient
vehicles, their strong position in the current market, their strategic direction for the next few years, and
the rising costs of fuel worldwide, it is evident that Honda will have a strong presence in the automotive
market in the future.
2.5. Hyundai
Hyundai Motor Co. (HMC) was established in Korea in 1967. The company’s first model (Cotina) was
released, in cooperation with Ford Motor Company, in 1968. In 1998, Hyundai acquired a 51% stake in
Kia, but has since reduced its share to 37%. In 2004, Hyundai was South Korea’s largest car maker and
the world’s seventh largest car maker selling 2.3 million units. Hyundai currently offers about a dozen
cars and minivans, as well as trucks, buses, and other commercial vehicles. Some popular entries in their
product lineup include the Accent, Sonata, Tucson, Elantra, Santa Fe, and Tiburon, which all earned the
title “Best Bet” in Jack Gillis’ The Car Book 2005.

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