EXTERNAL ANALYSIS OF SOCIOCULTURAL AND ECONOMIC

ENVIRONMENT OF AUTOMOTIVE INDUSTRY IN AMERICA

Currently, the automotive industry is growing rapidly in big cities. The automotive

industry in general has a positive trend in sales. Cars are one of the most popular means of

transportation for the public. This happens for various reasons ranging from lifestyle, safety,

and increasingly affordable car prices. The large number of transportation needs in the global

era brings opportunities for four-wheeled automotive induestries, which are very much

needed by the public as a means of daily transportation in order to be more efficient and

dynamic. At this point, many automotive industries have sprung up with various models,

designs, with many choice of quality and quite competitive prices. There are also many

brands that compete in the car automotive industry, from premium cars such as Mercedes-

Benz, Audi, BMW to middle class cars such as Honda, Toyota, Daihatsu, Nissan, Suzuki, and

Mitsubishi. However, in America the biggest automotive industry is still dominated by the

big three, namely General Motors (GM), Ford, and Chrysler.

In the midst of a weakening global economy today, car manufacturers are rethinking

to make innovations so that they are able to provide the products that can keep the

Americans’ interests. For Americans, the ratio between people with middle and upper

economic levels is not as much as the people with middle to lower economic levels. Most

Americans also prefer to use public transportation such as bus and subway rather than using

their own transportation. Such economic conditions in society make consumers consider

buying a car that is affordable in terms of price, but with a larger passenger carrying capacity.

The price of a car with a budget of $35000 - $37000 for a new car is an ideal price range for

people who lives in America with middle economic levels.

influenced by factors which include consumer involvement and their trust. The higher the

consumer is involved in the search for product information, the greater the incentive for the

consumer to make a purchase. Consumers who have confidence in certain brands are more

confident in making purchase decisions. These internal factors have a huge role and influence

on purchasing decisions. Consumer purchasing decisions are not only driven by brands, but

design is also very influential. It all depends on how the car manufacturer maintains a

positive brand image for its products so that it can create a positive impression on consumers.

On the other hand, consumers do not always want to buy new car. This happens for

several reason. The first one is the price of used cars is far below the price of a new car.

Second, consumers make calculations when buying a new car, and when they are going to

sell it at a considerable loss, consumers avoid progressive taxes that apply in America.

Another reason, consumers do not want to wait for a new car that is too long. For several type

of cars in the market, the waiting period for a new car sometimes takes too long. This might

cause many prospective buyers who cannot wait for the indent period, ultimately prefer to

find other alternatives by purchasing a former car that can be used immediately. Therefore,

the competition in the car showroom business industry in America is intense and competitive,

both covering excellent vehicle conditions, and also services that can satisfy customers.

In America, there are quite a lot of car sales competitors that make car automotive

industry players, including Ford, GM, Chrysler, Toyota, Honda, to continue to carry out

specific strategies to beat their competitors. Toyota is the second biggest manufacture

automotive industry in the world, although it is not the only car industry in America, because

Toyota has tough long-standing competitors such as Ford, GM, and Chrysler. The three car

automotive industries are categorized as the top automotive industries in America which are

good in terms of capital, human resources, and experience. They also have became a
predecessor compared to Toyota. Toyota is an old industry that was originally established in

Japan. It is actually not a genuine American industry. Toyota is the automotive car industry

that just entered America in 1957. Although it is not a genuine American product, Toyota

cannot be underestimated with its existing competitors. Toyota is always trying to filter or

imitating every system implemented by competitors weighs in to be better. General

automotive industrial problems, including Toyota’s, include internal and external factors. The

internal aspect is like limited capital compared to capital by long-established competitors, for

example competitors can carry out car ready stock of 100-200 units of cars, while Toyota is

only 40-50 units. The next internal problem is the trained human resources are very limited.

Only a few of them are trained and experienced workers. Meanwhile, external problems

include rivarly, threat of a new entry, buyer power, supplier power, substitute products,

sociocultural environment, demographic, economic environment, political or legal

environment, and technological environment. Nevertheless, the following explanation only

focuses on sociocultural environment and economic environment.

a. Sociocultural environment

Sociocultural environment of a product is a crucial aspect in marketing industry.

However, social factors do not really affect the commercial vehicle distribution business

sector in America. Commercial vehicles are vehicles that serve for business and commercial

vehicles are used by companies, in contrast to private cars which change from year to year

according to the lifestyle of the community. For commercial vehicle distributors, it only

markets to the big stores. The character or attitude of the community in paying is one of the

influences in the company, for example the attitude of the community who is late in paying.

On the other hand, the social and culture will play a significant role in automotive industry
that focus on selling private vehicles rather than business or commercial vehicles. Some

examples of automotive industry that are successful in marketing the private vehicles,

especially cars, are Toyota, Ford, and General Motors.

The Toyota company has a social responsibility where even though they sell quality

products, they still sell their cars at a fair price. For example, the Toyota companies in North

America seek to contribute to the economic growth of the United States, they also contribute

to the stable position and well-being of all those involved in the company (including

suppliers), and the growth of Toyota as a whole. A similar formulation exists in the

multinational company program document, but Toyota is more consistent in adhering to these

principles than any other company. One example is when company leadership officially

demanded that Lexus car developers have a new idea that had nothing to do with "gas eaters,"

which were taxed in the United States. To keep producing quality and environmentally

friendly cars, not all of Toyota's competitors are successful. The company is also one of the

first in the automotive industry to succeed in making environmentally friendly cars with

hybrid gasoline-electric engines. Toyota is investing heavily in developing environmentally

friendly technologies, including direct injection hydrogen and diesel fuel. This was done by

the Toyota company because they really care about consumers and the environment where

they promise to solve social problems related to clean air, energy savings and others (Toyota,

2020).

Moroever, the cultural factor of Toyota Industry plays a significant role in the market.

Most of the consumers in America chose Toyota cars because of its efficiency and reasonable

price, especially Toyota Avanza, in which the sales of this family car-based is the highest

among others. Another cultural aspect in the company is the employees’ attitude. According

to (Sosnovskikh, 2016), the Japanese culture plays a big role in Toyota industry. It is because

the founder of Toyota is originally from Japan. The Japanese culture is closely related to
family background. The employees of Toyota have strong relationships with each other based

on a sense of kinship. Moreover, in Japanese culture, the younger employees have high

respect for their seniors at work, where they are willing to do more work than they should.

This case happens a lot in Toyota industry.

The cultural background of the consumers also plays an important role for Toyota

Industry. The ethnics of consumers come from different background all over the world. It is a

significant thing for Toyota to take a look at the demographic trends in America. They also

need to monitor the demographic trends in today’s society as well. Toyota tend to attract a

wide variety of ethnic and social groups. Mostly, it attracts the Asians that live in America,

since Toyota is originallay made from Asia/Japan. In addition, Toyota has many kinds of

model that target specific consumer groups.

Not only sociocultural environment effects Toyota company, it also effects other

company like Ford. Just like Toyota, Ford has grown by producing their products that focus

in improving demand for eletric automobiles and hybrid vehicles. For the consumers who

have strong concern for the environment, they will more likely choose this particular type of

vehicles because they are eco-friendly. Furthermore, Ford has the opportunity to increase

their overall service in which can help to attract the consumers in America. Ford’s products

are known to be luxury and have high price in which can also help to increase the wealth gap

of automotive industry in America (Williams, 2010).

Another big automotive company in America is General Motors. Their social and

culture plays a significant role in the markets. The automotive company market has increased

their demand for electric vehicles where it can grow opportunities for General Motors by

developing, manufacturing, and selling the electric vehicles (Khan et al, 2017). Moreover, the

improvement of private vehicles will help to increase demand of sale for the company.
However, the increased demand of sharing vehicles produced by General Motors are more

likely a threat against the firm because it potentially decline the target consumers’ likehood

for buying new vehicles from General Motors. This aspect that has been analyzed emphasizes

the importance of exploiting opportunities in the remote through innovation, which can be

supported through GM’s organizational culture.

b. Economic Environment

The economic policy of a country will depend on the social life of the people in a city

or country. All products, services, and both profit and non-profit organizations are strongly

influenced by various opportunities and threats resulting from social, cultural, and various

environmental variables. These changes are a trend that will have an impact on people's

lifestyles, both in producing goods and services, as well as in consuming a product. Changes

in trends will result in changes in consumer behavior that will require different products,

services, and even strategies. Some proofs on automotive industries which show that the

economic factor play a major roles are Toyota, Ford and General Motors.

The economic environment of Toyota is one of the aspects that inlvolves in the

external environment. It is the strongest external aspect compared to the other aspects. Toyata

company has had its ups and downs for a long time in terms of their economy. One time in

1979, Toyota used to have obstacles in dealing with the economic environment in America. It

was because of the oil crisis that happened at that time. Toyota was almost went down.

However, Toyota could try to restructure the industry by increasing the cost of energy, in

which they also needed to rise the price of the car products. It was successful, until today

Toyota are still able to manage the economic environment in their company. It is important

for the company to analyze and watch economic enviroment at present and for the future.
According to (Piotrowksi and Guyette, 2010) Toyota had financial crisis in 2008 in which

they needed to borrow $3 billion to stay keep their company. This means, it is necessary for

Toyota to monitor the economic trend so that they can predict their interest, income and

spending better to avoid any kind of loss in the future.

The economy of Toyota Industry in America is relatively stable compared to other

economies. Even though in some states in America, Toyota find it a little bit more expensive

to hire the labor. Consequently, their profits are limited because of the high expenses that

they need to pay for the labor. Furthermore, the rising cost of energy in America every year

directly affects the economy of the Industry, even though all of the other companies in the

world feel the same way about the energy cost. It is affecting Toyota negatively as company

since the industry exploits the energy for most of the car production.

In line with Toyota, Ford has one of the biggest effects for the America’s economy.

America is the largest market for Ford automotive industry. Ford and America provide

benefits to both parties. It is because the Ford company is essential for the growth of

America’s economy (Arroyo, 2018). In addition, Ford also grows and develops high rate

markets in America. Since the market rate is raising, it also affects the US dollars in which it

is stronger than before. Nevertheless, the strength of US dollars might reduces profit the

attractivness and margins of Ford’s products because there are many of the firm’s automotive

parts and materials are produced in America. In this case. Ford’s company need to be careful

in order to maximize their chances in foreign markets.

In the economic aspect, companies can take advantage of large investments to create a

distributor organization for global marketing (Kluyver & Pearce, 2006). For the automotive

industry, one thing that affects the productivity of car sales is the decline in people's

purchasing power, both from within and outside the country. In addition, the decline was also
caused by the inflation rate that increased. One time, the impact of inflation also had an effect

in 2015 and caused many trading industries to go out of business or go bankrupt due to heavy

losses. However, during this difficult period, The industry of automotive’s existence was still

able to build the American economy. By absorbing a workforce of more than 5,000 people,

Toyota and Ford in the automotive industry continued to function as a labor-intensive

industry and survived this difficult period.

The economic aspect of General Motors also has a significant role in America’s

economy where the high growth rate of developing markets creates opportunities to grow and

expand in the area. For instance, the company dealership network in developing markets like

North America or South America. In addition, the company can expect minimal economic

issues in major markets, based on their relative stability (Soederberg, 2019). Nevertheless, the

company has to make sure the competence to adress rising competition with local or domestic

companies. The cases analyzed in this economy aspect indicate that GM can expect growth if

it ensures competitive advantage.

c. Conclusion

In conclusion, there are many factors which determine the running and success of

automotive industry in the world. There are internal and external factors. The external factors

include the ten forces, namely rivarly, threat of a new entry, buyer power, supplier power,

substitute products, sociocultural environment, demographic environment, economic

environment, political/legal environment, and technological environment. All of the ten

forces in the external aspects can help Toyota for competing in the automotive industry in

America. Moroever, based of the analysis of the external factors that focus on the socio-

cultural and economic environment of Toyota, Ford, and General Motors in America, it is
concluded that both aspects are essential in growing and developing automotive industry.

Automotive industry have to be able to maximize the improvement for sustainability

programs to address environmental concerns and related issues.

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