SWOT and PESTEL Analysis of 4 Automotive Companies
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Published: Tue, 10 Apr 2018
- General Motors (GM)
- Jaguar Landrover (JLR)
- Reference List
1. Introduction to SWOT and PESTEL
Conducting a PESTLE analysis (Political, Economic, Social, Technological, Legal and Environmental issues) can provide an indication as to the broader, macro-environment issues being faced by a business (Henry, 2011). The factors identified can then be developed through SWOT analysis (examining the emerging strengths, weaknesses, opportunities and threats) (Lynch, 2009). Whilst this is considered a simple tool, it does support a review of competitive positioning and any subsequent strategy development (McKeown, 2015).
2. GENERAL MOTORS (GM)
2.1. General Motors PESTEL Analysis
General Motors (GM) has been re-evaluating its international production capabilities and key markets in the light of recent political events within Europe. Although GM sales still increased by 4% in the light of the BREXIT decision and uncertainty over the implications for GM’s manufacturing footprint in the region, this element of the business has not made a profit since 1999.
There is therefore a clear focus on the domestic market (US) where political support and brand affiliations are seen to be strongest. The more protectionist stance of the current US administration (indicating the possible imposition of significant tariffs for automotive imports) seems to support this approach. These political developments have seen the external market emphasis move towards China and South America.
(GM, 2016a; BBC, 2017a; BBC, 2017b)
GM is a strong brand delivering sustained growth (over 92% since 2013 with total gross earnings in 2016 of $12.5Bn). Free cash flows are also impressive, which has helped to support the research, development and production effort necessary to support a number of new product launches. Shareholder support is high, given the high capital returns (almost 29% in 2016).
However, this strong economic performance has been built upon domestic sales (North America) and strong growth in China and South America as emerging markets. European operations continued to generate large losses and have now been sold to the PSA Group.
GM has also leveraged impressive returns from supporting market activities, such as vehicle financing, the supply and distribution of components and its OnStar intelligent vehicle management and communications system
(GM, 2016a; BBC, 2017a; GM Financial, 2017)
GM’s OnStar system demonstrates the corporate awareness of how modern consumers prefer to interact with their suppliers and the connectivity expected of modern automotive products. The company has also been able to develop an extensive product range that allows it to meet a huge range of customer value expectations – from luxury vehicles, through to new automotive energy systems (electric vehicles) and perceived value brands. However, its marketing to these distinct consumer groups has been perceived as mixed (using the same channels to reach different social groups) which has been exploited by competitors
The extensive legislative and regulatory requirements around automobile manufacturing, distribution and operation has resulted in a proactive GM Corporate Social Responsibility (CSR) policy. Environmental aspects (e.g. CO2 emissions) and supply chain visibility (e.g. labour conditions) are now core elements of GM’s value proposition to stakeholders and customers.
(OnStar, 2017; Sunshine, 2011; Blowfield, 2013; GM, 2016b)
GM, in contrast to many of its competitors, has cut the number of direct employees and associated resources dedicated to product research and development. Despite this policy, the company has remained a leading market innovator generating over 1,600 patents in 2013. This reflects a corporate understanding that modern product development cannot be pursued in isolation and that growth will come from more engaged, partnership approaches that leverage associated technologies. GM’s OnStar system provides a clear indication of the market benefits arising from this approach.
This more collaborative approach (whilst still protecting corporate interests through robust patent protection) is also helping to exploit/develop new markets. For example, GM currently plan to launch ten new energy vehicles in China and the launch of the Bolt EV in North America (the first extended range electric vehicle).
(Muller, 2013; Zimmer, 2014; OnStar, 2017; GM, 2016a)
GM has had to conduct an extensive product recall over major vehicle safety concerns which were allegedly responsible for 124 deaths and 275 injuries. Whilst the company sought to avoid any legal liabilities (citing that they would have been the responsibility of the previous corporate entity which was declared bankrupt in 2009), several criminal investigations and large compensation claims were launched.
GM has so far paid around $2Bn in criminal penalties and civil settlements, seeking to reach ‘out of court’ negotiated agreements wherever possible to minimize negative brand exposure. It has since emerged that the fault was known about by several GM employees who have now been dismissed. Despite the scale of the issue, there appears to have been minimal impact on brand reputation and current sales.
(NBC, 2016; Frizell, 2014; Reuters, 2016).
Like most comparable corporations, GM recognises the importance of a robust CSR policy to meet its legislative and regulatory requirements whilst also addressing the broader value expectations of its customers. In order to ensure that the necessary changes are embedded within GM’s business practices and working culture, the company has placed CSR at the heart of its financial and operational efficiency programme.
There are therefore clear targets in relation to the use of energy from renewable resources and a commitment to be solely reliant on such sources by no later than 2050. Re-use and recycling initiative are used to reduce manufacturing costs and the corporate carbon footprint and there are also clear linkages between business-level initiatives and local community programmes.
(GM, 2016a; GM, 2016b; Henry, 2011).
2.2. General Motors SWOT Analysis
Since the 2009 bankruptcy filing, GM has re-emerged as a significant global entity in the automotive sector. Its past financial concerns have ensured that the new leadership maintain rigorous control of the cost-base and margins and the business therefore delivers industry-leading returns for investors. This focus means that any elements of the business that are unable to sustain growth and sales expectations are quickly disposed of if they cannot be returned to profitability (e.g. GM’s European manufacturing capabilities and the Vauxhall/Opel brands).
The partnership approach adopted in relation to innovation has helped GM to effectively exploit both new market locations (e.g. China) and market segments (e.g. OnStar).
GM no longer has any significant market presence in Europe. Whilst this arena has not been able to deliver sales growth or profitability for some time, it was important in terms of brand recognition and established political and commercial relations. Should GM wish to re-enter this market in the future in order to develop sales for some of their more innovative products (such as the Bolt EV) it may prove difficult and expensive to do so.
Currently, revenue generation is largely limited to the North American market around established brands and services. Whilst new arenas are now being exploited (particularly South America and China), this single market focus could make the business less resilient than competitors should the domestic economy (or the political environment that shapes it) experience any significant turbulence (e.g. unemployment rates).
GM’s focus on efficiency and effectiveness is helping to sustain margins that support the launch of new product ranges and the innovation needed to develop their market share. The more open, partnership approach to research and development is likely to help GM build the networks and associations needed to quickly establish a competitive lead in new high growth markets such as China.
GM appears to have a better, more instinctive understanding of the opportunities presented through the development of linkages between their core automotive products and the social/lifestyle expectations of customers. Consequently, adjacent business growth (such as financial services and systems connectivity/support) could be strong if effectively managed.
GM is now largely dependent on the US market to fund its growth and development aspirations. Therefore, any economic downturn could quickly make GM’s current expansion and development plans unaffordable. The drive to create a business model that is attractive to shareholders (due to high capital returns) may mean that corporate reserves are not maintained at a level high enough to cope with any such eventuality.
Whilst the reputational and financial damage arising from the faulty components scandal remains limited, further civil and criminal claims and sanctions may still emerge. Should there be a repeat of such an incident – particularly in new markets such as China – then the damage to the brand and future profitability is likely to be much more considerable.
3. JAGUAR LAND ROVER (JLR)
3.1. JLR PESTEL Analysis
Jaguar Land Rover Automotive PLC (JLR) is now a subsidiary of Tata Motors and under this new ownership regime has developed ambitious plans for expansion. Using the leverage of iconic UK brands, the business is seeking Government support to aid in the development of a new site to double production from 500,000 to 1,000,000 cars each year. The company have stated that this ambition would lead to the creation of a further 10,000 jobs, but to do so they are lobbying hard for the UK to invest in the necessary power supplies and regional infrastructure.
The political desire to maintain and develop UK based employment opportunities and to protect UK trusted brands gives JLR significant leverage. This leverage is even stronger when previous Government support of non-UK brand competitors such as Toyota is considered.
(BBC, 2016a; JLR, 2016)
Inward investment of over $3Bn in 2015 has helped to rejuvenate the business under its new owners, along with a focus on the development of premium automotive product ranges targeted at affluent export markets. Plans to further develop business resilience and prepare for the development of new markets have also been taken forward through the development of manufacturing facilities in Brazil and Slovakia.
Sales in 2015-2016 were up 13%, generating revenues of over £22Bn and a pre-tax profit of more than £1.5Bn. The company were able to deliver these results despite significant market uncertainty in Europe due to the BREXIT decision, a slow-down in Chinese and US market growth and a stock loss of £245M following a major storage depot fire.
(JLR, 2016; Gleeson, 2015; Guardian, 2017)
Despite significant financial and reputational turbulence in the past, JLR remains a trusted and iconic brand reflecting aspirational social goals. Effective marketing and an established UK production history have helped the brand to become incorporated within both the UK and globally as a reflection of quality, luxury and reliability.
As a result, the business has been able to capitalise on the social status that accrues from association with the brand. This has helped to maintain a pricing premium that also extends to affiliated products (such as branded clothing) and ensured that higher prices are also sustained for products in the ‘used car’ market. JLR have also been proactive in recognising the evolving nature of customer value expectations, ensuring that their brands are associated with ethical and sustainable business practices.
(Kapferer, 2012; JLR, 2016; Jaguar, 2017)
JLR does not rely on its iconic brands to maintain market share, recognising that its competitive position relies on being able to deliver automotive solutions that meet the expectations of a demanding customer community. To do so, JLRs $3.1Bn investment in technology and innovation is designed to ensure that it continues to lead the market in creating vehicles that people aspire to own. As a result, the business is now leading in the development of lightweight aluminium technologies and has secured patent rights across a large range of engineering solutions.
JLR’s focus on maintaining a long-term technology advantage is reflected in its skills development programmes built around its creation of the National Automotive Innovation Centre and its partnership with the Warwick Manufacturing Group.
(JLR, 2016; WMG, 2016; WMG, 2017)
JLR takes a robust approach to the protection of its brands and patents, as evidenced in their recent successful legal challenge against a Canadian company attempting to use the ‘Defender’ name (even though this JLR vehicle is not currently in production). However, in newer markets such as China where patent and trademark protection can be a little more ‘fluid’, this is likely to present a greater legal problem. This issue could undermine plans to effectively expand prestige sales in these regions as local versions and similar derivatives are produced.
To overcome such issues, JLR has used a joint venture approach in launching its products in China. However, this has not prevented the emergence of a patent dispute between JLR and Jiangling Motor Holding over design similarities between the Range Rover Evoque (JLR) and the LandWind X7 (Jiangling).
(Mullen, 2017; AutoCar, 2016)
JLR has developed a lifecycle approach to sustainability issues, seeking to capture and understand the total environmental impact of its products and manufacturing operations and then incorporating performance improvement targets accordingly. As well as meeting legislative and regulatory requirements, the company is seeking to become carbon neutral by 2020 through revised production processes and offset programmes.
As a part of its innovative design process, JLR continues to reduce vehicle emissions, improve fuel economy and reduce the environmental impact of its manufacturing sites. However, whilst it is following a major programme of research intro electrification and has provided clear indications of their intentions and capabilities within the FIA Formula E championship, JLR’s competitors are further forward in the development, distribution and sale of production models.
(Earley, 2013; JLR, 2016; Jaguar, 2016)
3.2. JLR SWOT Analysis
JLR, as a part of the Tata Motors group is now well resourced and has been able to secure a distinct competitive position through the development of premium vehicles under iconic, aspirational brands. Whilst the design approach and focus on quality ensures the delivery of high-performance vehicles, a pricing premium can also be maintained because of the social status that JLR brand association attracts.
As a consequence, JLR is able to secure significant sales volumes in both established and new/emerging markets. It is also able to exert considerable political influence in the UK, given its planned expansion and the additional employment (direct and within the supply chain) that this could introduce.
JLR has an almost exclusive focus on the provision of premium and luxury performance vehicles. Strategic depth is obtained by securing sales globally, but this makes the business vulnerable to the emergence of local alternatives that are able to develop a similar national brand association.
Within emerging markets (such as China), JLR has sought to develop a partnership approach to expansion in order to benefit from local expertise. However, there is an associated lack of control over distribution channels which could adversely shape trust in JLR brands (i.e. poor operational performance and support in relation to local competitors).
JLR has yet to turn its engineering expertise in the area of hybrid and electric vehicles into mainstream commercial sales.
Tata’s significant capital investment in JLR’s research and design capabilities are already generating patents that will support the launch of new products. Linking this to a sustainable business philosophy is also helping to reduce operating costs and improve manufacturing efficiency. This, in turn, will allow some flexibility around future pricing approaches introducing an element of business resilience during uncertain economic conditions.
JLR may be able to use its market position and brand recognition to support the launch of a new range of hybrid and electric vehicles within established markets. Securing support from the UK Government will also lead to a doubling of production capacity which will provide the sales volumes needed to fully exploit new market opportunities.
JLR is already experiencing significant challenges in protecting its design rights and patents within China and despite its partnership approach and litigation this is likely to continue. Focussing exclusively on the supply of premium and luxury vehicles will therefore make JLR susceptible to losing market share to lower priced local competitors (such as the LandWind X7).
The long-term market implications of the UK’s decision to leave the European Union (BREXIT) are not yet known. Whilst JLR is likely to be better placed than some competitors should import/export barriers and tariffs be introduced (given the prestige status of core brands and the global distribution of its manufacturing capabilities), the current aspiration to expand UK manufacturing capacity may be undermined.
4. ROLLS-ROYCE HOLDINGS PLC
4.1. Rolls-Royce PESTEL Analysis
Rolls-Royce has a diverse power and propulsion product portfolio that extends across both the civil and military sectors globally. As the second largest provider of military aircraft engines and the largest manufacturer of engines for civil aircraft this provides the business with extensive political access and influence across the world.
The UK’s decision to leave the EU (Brexit) is a cause of great concern for the company given its international customer base, as this introduces an element of future supply and pricing uncertainty which competitors may be able to exploit. The business is therefore very focussed on lobbying to maintain the free movement of labour and goods. As an iconic national brand, the ability to influence local/national political decisions is relatively high, reinforced by its economic impact (i.e. local investment and employment).
(Rolls-Royce, 2016a; Rolls-Royce, 2017; BBC, 2017c)
Economic and market focus was introduced in 2011 when Rolls-Royce Holdings was formed to cover five distinct customer groupings – civil and military aerospace, power systems, marine (vessels and power) and nuclear. Previous automotive interests are now held by Rolls-Royce Motor Cars (owned by BMW).
This creates both an element of product synergy (particularly in terms of research and development and manufacturing) whilst also providing economic resilience by supporting a number of distinct market segments. The nature of the market also creates some stability due to the visibility of future orders (due to the lead times for items such as aircraft in production) and the extensive maintenance and servicing revenues.
The business was therefore able to sustain revenues of almost £13Bn in 2016, delivering gross profits of over £950M.
(Rolls-Royce, 2016a; Financial Times, 2017)
Within the UK, there are high levels of awareness around the Rolls-Royce brand, but these are predominantly linked to the automotive history of the business and these elements are now owned by BMW. As products are largely incorporated into other systems (e.g. aircraft, ships, submarines and power stations), the importance of Rolls-Royce Holdings to the national infrastructure (i.e. direct employment, supply chain opportunities, international contracts) if far less understood and appreciated.
Almost £3Bn of revenues are generated from the military and nuclear sectors which can attract extensive lobbying and adverse publicity due to the social and ethical concerns that are generated. Rolls-Royce seeks to counteract these concerns (and the potential damage to the brand that could result) by focussing on issues such as local employment and community engagement.
(Rolls-Royce, 2016a; BBC, 2017d; BBC, 2008)
In 2016, Rolls-Royce spent over £1.3Bn on research and development, applying for almost 700 patents to protect their intellectual capital base. Key customers (such as the United States Air Force) recognise the company as being a superior supplier and strategic partner. The business is using operational efficiency programmes (which delivered benefits and saving totalling £60M in 2016) to support the modernisation of its design and production capabilities. For example their US production site (Indianapolis) now possess a new digital pre-production design facility which will allow manufacturing methods to be rigorously tested before being applied.
The multi-year relationships that Rolls-Royce has to develop with its customers (given the life of assets such as aircraft) gives the business a detailed understanding of the technology needs and expectations of its client base.
(Rolls-Royce, 2016a; DefenseNews, 2015; EPSRC, 2015)
In 2013, the UK Serious Fraud Office (SFO) launched an investigation into bribery and corruption allegations surrounding the activities of Rolls-Royce intermediaries in several overseas markets. The criminal investigation was initially centered on practices in China and Indonesia – critical emerging markets for the company – where it was stated that large sums had been paid to secure lucrative contracts.
After a protracted four year investigation, Rolls-Royce agreed to accept a penalty of over £670M in recognition of criminal conduct covering over thirty years of activity, in seven distinct national/regional locations and affecting three market sectors. Whilst this has ended corporate action, criminal investigations into the actions of specific individuals continue.
(Tovey, 2013; SFO, 2017)
Rolls-Royce has sought to create a sustainable business model, placing CSR requirements at the centre of its approach to innovation and product development. Meeting the expanded value expectations of all stakeholders is seen to be essential for a business reliant on long-term trust relationships, whilst also meeting the evolving demands of environmental emissions legislation.
Over 66% of research and development expenditure is therefore focussed on the environmental performance of Rolls-Royce’s products. This reduces production and running costs whilst also meeting CSR obligations. An example of this approach is the RSS Sir David Attenborough – the exploration vessel designed by Rolls Royce to minimise the impact of emissions, noise and vibration in order to protect the vulnerable polar environment.
(Rolls-Royce, 2016b; CSRHub, 2017)
4.2. Rolls-Royce SWOT Analysis
Since its restructuring in 2011 the company is now on a sound financial footing with an order book and business model that supports predictable future revenue streams. The diverse market portfolio is served by a core range of products and services which helps to maximise the return from research and development investment whilst spreading macro-economic risks.
Rolls-Royce is a trusted corporate brand and partner and has built strategic relationships with customers in both the civil and military environments. Its strategic footprint (such as the facility in Indianapolis) also supports global operations and should help to minimise the impact of any local market downturns. The business also maintains realistic returns for shareholders, ensuring that cash flows continue to support the innovation required to maintain Rolls-Royce’s competitive position.
The focus on the production and support of high capital cost products means that the business can be dramatically affected by both macro-economic factors which affect Government spending decisions. Also, the nature of the competitive environment means that the business can be affected by associated market drivers (e.g. the decision by Emirates Airline to cancel the order of seventy Airbus A70 aircraft led to Rolls-Royce losing business worth $2.6Bn).
Rolls Royce is carrying a high corporate debt burden, which has been exacerbated by the recent SFO action and changes in accounting regulations. This may undermine future investor confidence and the ability of the business to raise funds for future programmes.
The corporate structure and the distinctiveness of the markets it supports will allow Rolls-Royce to consider new joint venture models and the sale of distinct operating arms without adversely affecting the core business model and revenue streams. Its extensive infrastructure base, approach to innovation and long-term partnerships with customers also ensures that the company is well placed for potential diversification in the future.
The corporate approach to value engineering is helping to produce products that are meeting and exceeding emissions targets, reducing client running costs and addressing the broader CSR concerns of stakeholders. A revised approach to brand marketing could turn this into a distinct competitive advantage for the business.
Criminal investigations into bribery and corruption continue and these could lead to further reputational and financial damage for Rolls-Royce. The current debt burden, along with loses in the maritime element of the business could also lead to the business being seen as vulnerable by major competitors, leading to unwanted/hostile merger and acquisition approaches.
The continuing uncertainty over the implications of BREXIT may make recent UK investment announcements untenable. The business model is also vulnerable to macro-economic risks (such as oil price variation and raw materials costs) which can have an immediate and dramatic impact on the revenue streams needed to sustain future development. The company may also be vulnerable to the emergence of new technology solutions in the propulsion arena (such as hybrid and electric solutions) which would undermine the core product offering of the business.
5.1. Toyota PESTEL Analysis
As an international sales-based business, Toyota is vulnerable to both national and international political and economic drivers that affect the relative strength of the Yen. Whilst it seeks to mitigate this through a dispersed global manufacturing capability, the strong Yen still led to a drop in profits of 21% in 2016-2017.
In order to improve its economic outlook and the viability of its business model, Toyota is seeking to make significant investments in both the UK (£240M) and the US ($10Bn) to develop markets and reduce exchange rate risks. However, the political climate is likely to make both propositions challenging for the company. UK politicians are already questioning Toyota’s motives and seeking reassurances that their investment plans are not exploiting Government incentives and assurances following the BREXIT decision
(Toyota, 2017a; BBC, 2017f; Reuters, 2017b)
The 2016-2017 operating period has proven to be particularly challenging for Toyota. Although the net operating profit increased by ¥120 trillion on the previous year, this benefit was largely negated by adverse exchange rate fluctuations. As a result, net revenues stood at ¥27.6 trillion (down almost 3%) and net income dropped to ¥1.8 trillion (down ¥0.5 trillion on the previous year).
Whilst the business sold almost nine million vehicles globally, outside of Japan and Asia sales volumes are showing limited growth and the European operation delivered an operating loss of ¥11.8Bn. Operating income from its financial services operation was almost half the revenues generated in 2015-2016, reflecting both the impact of exchange rate variations and a significant drop in transaction volumes.
(Toyota, 2017b; BBC, 2017f)
Although it has lost market share to competitors in core product ranges, Toyota appear to be leading the way in meeting the broader value expectations of customers in terms of their environmental impact and footprint. The business is seen to be the market leader in the provision of hybrid and electronic vehicles and has been able to develop trusted brands such as the Prius.
The business has been slightly slower than its competitors in recognising how social trends around connectivity are expected to be reflected within the automotive industry. However, Toyota have recently taken forward a partnership with KDDI in an attempt to build a global communications platform that will provide reliable automotive data communications technology to improve the connectivity of their vehicles.
(Toyota, 2017b; Blowfield, 2013; Tajitsu, 2017; KDDI, 2016)
In 2011, Toyota spent more on research and development than any other company in the world – almost $10Bn (approximately 4.2% of sales revenue). Whilst current figures are less clear (given report availability and exchange rate fluctuations), this effort appears to have been sustained. Nevertheless, competitor spending has also increased significantly which could begin to challenge Toyota’s market position as they begin to mirror some of the innovative approaches adopted.
However, Toyota’s sustained focus on alternative propulsion technologies and the fact that it has been able to develop proven concepts and ideas tested in production vehicles supplied to consumers in relatively large numbers (such as the Prius) ensures that its innovative approa
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