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Pestel Analysis

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PESTEL Analysis
Political Factors:
Political factors greatly affect the automotive industry. President Obama has recently announced new efforts to further fuel efficiency standards for medium and heavy duty trucks. This category ranges from large pickup trucks and school buses to the massive 18 –wheeler tractors. The new standard is expected to increase fuel efficiency between 9% and 23% with the largest trucks receiving the largest reductions (23%). This standard will be applied to 2014 – 2018 models and estimates $50 billion in savings for truck users in fuel over the lifetime of the vehicle. The new greenhouse gas standards will become final by March 2016 (Eilperin, 2014). Another long term plan was introduced by the White House states agreements were made between the president and 13 automakers to increase fuel efficiency to 54.5 miles per gallon for cars and light trucks. This plan is expected to be fulfilled by year 2025. A list of the automakers is as follows, Ford, GM, Chrysler, BMW, Honda, Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota, and Volvo. Combined these companies account for 90% of vehicles sold in US. Achievement of both plans (most formerly mentioned) estimates that consumers will save $1.7 trillion at the pump or $8K per vehicle. Disposable income, and in turn, economic growth is expected to increase and create quality domestic jobs within cutting edge industries across the country. Additionally, these standards also reduce carbon pollution, more than 6 billion metric tons of greenhouse gas over the course of the program – more than the amount of carbon dioxide emitted by US last year. The benefits of Obama’s plan also include oil, consumer, economical and environmental savings and improvements (Office of the Press Secretary, 2011). Government also offers incentives for electric vehicle and plug in hybrid vehicles. This credit is up to $7500 dependent on the capacity of the battery used to fuel the vehicle (Fuel Economy Gov). In addition to the nationwide plans, many other politicians are introducing a variety of bills to change the climate in their states or countries. The state of California, for example, is a major player in the automotive industry. In fact, California’s auto emissions standards are considered stricter than the federal guidelines in place as they began passing regulations for cleaner cars in the 1960s to help ease the developing problems caused by the world’s worst smog. Currently 14 other states have adopted California’s smog emissions standards as their own including Massachusetts and New York (Fox News, 2012).

Economic conditions: The growth of Asia as an automotive marketplace has helped grow the global car sales altogether significantly while Europe is turning away from cars altogether as described in the annual report by OICA and with low incomes fuel efficiency is key driving the compact and hybrid segments. In the US, fuel prices fell during the second half of 2008 because of the US financial crisis which sent financial shockwaves throughout the global economy. The automotive Industry’s revenues fell about 15.4% in 2009, however, as economic conditions began to improve and the disposable income increased in 2010, industry revenues increased significantly to 20.5%. It is estimated that built up demand will help with industry revenue growth currently at 2.1% for 2013 bringing overall revenue of this industry monster to an estimated $2.3 trillion. IBIS World experts expect industry revenue to continue growing at an annualized rate of 2.2% over the five years to 2013. Though the growth remains strong, the diminishing American middle class indicates that only half of American households are middle-income, down from 61 percent in the 1970s and in turn is likely to increase sales in fuel efficient vehicles as families look for any and all ways to save, including and especially fuel costs which have more than tripled since the 1990s as stated in the 2012 Pew Research Center report . Rising incomes and, in turn, automotive demand in the BRIC countries (Brazil, Russia, India and China) which supported production over the last five years affect the industry as well as the global sales further supporting industry growth, as well as sales of Fuel Efficient, Hybrid and Electric Cars.

Sociocultural Factors: The Prius phenomenon can be seen everywhere. The buyers range in age from college students concerned about the environment to technology driven individuals. Nissan leaf is a new fully electric entrant and based on surveys of buyers who pre-ordered this model indicates they are an educated and tech-savvy group. In fact, the average Leaf buyer is: o in the age of 40’s o owns a home and garage o makes about $125,000 annually o is college-educated o already owns a fuel-efficient vehicle such as the Toyota Prius
Surveys by the University of Michigan and Pike Research found that the more educated a person, the more likely he or she is to be interested in purchasing an eco friendly vehicle. As well those with higher income are more likely to purchase a PEV (Thorstensen, Libby, 2013).

Technological Factors:

Self driving cars are the future. Tesla claims they will have the first self driving car you can buy within three years. Google is close with 5 years. Accident prevention systems are available on Volvos, Mercedes and BMW offer traffic jam assist according to the same 2013 POLK Report. Smart navigation systems help drivers avoid traffic. When it comes to alternative fuel technologies that are being explored they include fuel cell technology, hydrogen-powered vehicles, ethanol vehicles and plug-in hybrid electric vehicles. The success of these technologies depends on future fuel prices, economy, government policies concerning greenhouse gas emissions. Growth in low-emission vehicles largely depends on how quickly consumers are willing to move away from traditional combustion engines. The development of flexible-fuel vehicles, which can run on two different types of fuel, is forecast to slow over the next five years, particularly as flexible fuels (e.g. E85, a mixture of ethanol and gasoline) prove uneconomical and rely highly on subsidies. Automakers that were too late to jump on the clean vehicle bandwagon have been trying to get ahead by investing into electric car technology. IBIS World expects that major car manufacturers will continue to launch electric cars over the next five years.

Several advantages of electric vehicles in comparison to gas powered vehicles are how energy efficient they are as PEVs convert 59-62% of the electrical energy from the grid to provide power at the wheels whereas gasoline vehicles convert about 17-21% of the stored energy. In addition 60% of gas vehicles contribute to 1/3 of the nation’s greenhouse gas emissions. Electric vehicles significantly reduce carbon emissions in turn assisting in utilizing renewable energy. They tremendously cut down noise pollution and reduce the use of oil, transmission fluid and other fluids hazardous to the environment. Electricity from nuclear, hydro, solar, or wind powered plants do not even create air pollutants. Therefore PEVs produce no tailpipe pollutants making this group of vehicle very environmentally friendly (Fuel Economy Gov).

Environmental Forces: It is no secret that California and other highly populated regions around the country have been suffering from Smog and vehicle related issues. Its Zero Emissions have long been the standard for the World, though few less developed countries have put in place controls to reduce their emissions. In the next five years nearly all global manufacturers will be involved in research and development to create fuel-efficient and environmentally friendly vehicles. As well in the next five years, consumers will likely be more willing to adapt to new fuel-saving and clean technology, due to increased environmental awareness. However, overall profit is forecast to decrease slightly by 2018, as increasing fuel-efficiencies spur more investment into R&D. During a time when global light vehicle sales fell 4 percent, one segment of the market experienced considerable growth. Worldwide sales of gas-electric hybrid vehicles grew 44.3 percent from 2008 to 2009, when almost 740,000 hybrid cars and trucks were sold. Despite the popularity of hybrids in certain areas of the world and the media hype these “green” vehicles generate, they comprise just 1.3 percent of global light vehicle sales. According to Polk View.

Legal/Regulatory Factors: In the US the EPA emissions standards and the gas guzzler tax are driving the growth of the Fuel Efficient, Hybrid and Electric Car industries. California is the strictest state and the Bar setter for the highest requirements for fuel efficient vehicles. Globally the Automotive industry is changing with sales actually declining in Europe while they are growing in Asia and Americas. As mentioned above, the IRS allows a tax credit for qualified battery-electric vehicles of up to $7500, depending on the vehicle type. A similar credit is available for two or three-wheeled and low-speed electric vehicles. One can claim the credit by completing IRS Form 8834 and attaching it to the Form 1040. However, the State of Oregon no longer allows tax credits for alternative fueled vehicles but does offer a tax credit for charging equipment.

5 Competitive Forces Analysis 1. Competition from rival sellers: Top sellers have a battle on their hands. Honda is falling off. Toyota is holding strong, even after its deadly gas pedal issues, as is Ford. Audi taken a large chunk of the luxury segment taking significant market share from Mercedes and BMW over the last 10 years. GM is making a comeback, but the real star here is Hyundai. Breaking records and gaining large shares of the market the Korean automaker has given a lot of brands a run for their money and it also offers Hybrid Models competing with the likes of Toyota and Ford as well as a luxury line that has taken clients away from Lexus, Mercedes, Infiniti, BMW, Audi and Acura, the typical luxury lineup (Webb, 2012).

2. Competition from threat of new entrants: Fiat is a new entrant that appears to have captured the young and retiree market. MINI is going strong. Porsche Panamera is making a dent in the luxury sedan market and Ford continues to grow its lineup and has done very well with its compact sedans and SUVs. Since its inception the Toyota Prius is the undisputed leader in the Hybrid market but Ford has recently introduced the Ford Max which is quickly gaining momentum taking some of the market share from Toyota with better gas mileage and a more aesthetically pleasing design (Halliday, 2012).

3. Competitive pressures from sellers of substitute products: The biggest surprise and possibly a sign of things to come is Tesla. Its sporty luxury sedan, the Model S has actually outsold the market’s benchmark luxury sedans Mercedes S-Class, BMW 6 and 7 series, Lexus LS and the Porsche Panamera (Tesla sales through Q3 of 2013). It is an amazing feat for this Electric Newcomer. Tesla is turning the automotive world upside down. Now several automakers that specialize in large luxury sedans Mercedes, Audi and BMW have a new leader, not just a competitor named Tesla (Evanson, 2014).

4. Competitive supplier bargaining power: Right now the suppliers of batteries are in high demand. So are ones that supply the latest technology. Several technology features are becoming more and more commonplace increasing the bargaining power of the suppliers. Suppliers that manufacture back up cameras and safety sensors for parking and accident avoidance systems are going to be in increasingly high demand as these features continue to be in higher demand and become more common place in vehicles. The same goes for suppliers of airbags. Ceramic braking systems are also catching on and GPS systems are more common place than ever.

5. Competitive buyer bargaining power: When the industry was falling in 2008 automakers had to offer very aggressive payment terms, incentives, and even the government stepped in with tax credits (cash for clunkers) and other incentives to drive sales. The industry is extremely competitive with many entrants in each category. Buyers have a lot of choices and brand, image, quality and long term value play a huge role. Subaru has maintained a loyal following. Toyota has a long standing reputation for value and uses it to its advantage. While BMW is more expensive than Mercedes and Audi in almost every segment, they offer buyers free maintenance, including brake pad changes, fluid changes and all other maintenance short of replacing tires for the first 50,000 miles. BMW ends up looking like a bargain (BMW USA). Tesla offers free fuel up station to charge their cars along many routes and pride themselves on their “No Service Needed” drive system (Tesla). Automakers have to be very creative and ones that are capture the hearts of the customers are take away their bargaining power by becoming the clear choice in a particular segment.

Summary Sporty compacts, hybrids & electric, electric & luxury electric cars are becoming more common at higher rates than ever before. The power of electric motors, the quiet delivery of torque, the flat toque curve that cannot be matched by gasoline engines and their unmatched efficiency make competing with them almost impossible. As the prices of these vehicles become more affordable there is no doubt they are going to win the hearts of young, old, and car enthusiasts alike. Tesla received more awards than any new vehicle ever. BMW is about to launch the i8, a breathtaking hybrid car with an electric motor assisted by a small three cylinder With its completely unique drive concept, it reinvents the idea of a sports car. The very powerful plug-in hybrid system is combined with a BMW TwinPower Turbo 1.5-litre, 3-cylinder petrol engine and brings together the benefits of an electric motor and a gas engine to produce an amazing driving experience and performance. As amazing as the BMW may be Tesla, Leaf, Volt and other Electrics offer a completely electric experience and the Battery electric vehicles also benefit from not having a typical transmission or combustion engine — eliminating oil changes, fuel filters, emissions testing and other costly maintenance. A simplified drive train and braking system means greater reliability and fewer potential repairs, too. It is very clear that the future of the Industry is with hybrids & electrics and it is coming faster than anyone expected.

Work Cited 1. IBIS World (2009-2014), Global Car & Automobile Manufacturing, Industry Outlook, Web, 4 April, 2014. http://0clients1.ibisworld.com.helin.uri.edu/reports/gl/industry/industryoutlook.aspx?indid=1000 2. Thornstensen L. & Libby T. (2013). International Economic Development Council IEDC, Analysis of the Electric Vehicle Industry, Web, 3 April, 2014. http://www.iedconline.org/clientuploads/Downloads/edrp/IEDC_Electric_Vehicle_Industry.pdf 3. Eilperin, J. (2014). Washington Post, Obama to Tighten Fuel Efficiency Standards for Big Trucks, February 14, 2014, Web, 3 April 2014. http://www.washingtonpost.com/blogs/post-politics/wp/2014/02/18/obama-to-tighten-fuel-efficiency-standards-for-big-trucks/ 4. Office of the Press Secretary. (2011). White House Gov, July 29, 2011, Web, 3 April, 2014. http://www.whitehouse.gov/the-press-office/2011/07/29/president-obama-announces-historic-545-mpg-fuel-efficiency-standard 5. Fuel Economy Gov. (2014). Federal Tax Credits for Electric Vehicles Purchased in or after 2010, April 7, 2014, Web, 4 April, 2014. http://www.fueleconomy.gov/feg/taxevb.shtml 6. Associated Press. (2012). California Passes Sweeping Auto Emissions Standards, January 28, 2012, Web, 5 April, 2014. http://www.foxnews.com/politics/2012/01/28/california-passes-sweeping-auto-emission-standards/ 7. Webb, A. (2012). Business Week, Audi Threatens BMWs 7 Year Lead in Car Sales, September 10, 2012, Web, 5 April, 2014. http://www.businessweek.com/news/2012-09-10/audi-trims-bmw-s-2012-global-luxury-lead-to-2-110-autos 8. Halliday, J. (2012). Forbes, Ford’s C-Max Hybrid Challenges Market Leader, October 10, 2012, Web, 6 April, 2014. http://www.forbes.com/sites/jeanhalliday/2012/10/04/fords-c-max-hybrid-challenges-market-leader/ 9. http://www.cnbc.com/id/44481705/page/11 10. Evanson, J. (2014), Tesla Motors Investors Presentation, January 2014, Web, 6 April, 2014. http://files.shareholder.com/downloads/ABEA-4CW8X0/3072342947x0x720221/5647bed2-1c27-4b40-abd3-dd11f8bc474e/Investor%20Presentation%20-%20Jan%202014.pdf

11. (2010) Industry Report, PV/201003-Issue 019. Asia Hybrids, March 2012, Web, 4 April, 2014. file:///C:/Users/lex9910/Downloads/PV-201003-Issue019-AsiaHybrids.pdf

12. (2014) Industry Report, 2013 Industry Production Statistics, Web 6 April, 2014. http://www.oica.net/category/production-statistics/

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...CONTENTS 1. Introduction ............................................................................................................5 2. External Analysis ...................................................................................................5 2.1 Wider Macro-Environmental Analysis ............................................................5 2.2 Industry analysis .............................................................................................7 2.3 Industry Life cycle ..........................................................................................9 2.4 Competitor Analysis ..................................................................................... 10 2.5 Industry‟s Critical Success Factors ................................................................ 10 2.6 Opportunities & Threats................................................................................ 11 3. Internal Analysis .................................................................................................. 11 3.1 Starbucks‟s Strengths & Weaknesses ............................................................ 11 3.2 Evaluation of Starbucks‟ Main Capabilities .................................................. 12 3.3 Value Chain Analysis ................................................................................... 13 3.4 Starbucks‟ Main Internal Capabilities against industry‟s Critical Success Factors .......................................................

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