Gas Prices in the American Auto Industry

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Table of Contents

Introduction
The mistakes committed by U.S. Automakers
The way-forward
Conclusion
Work Cited

Introduction

It is a fact that the global increase in gas prices has to lead to various changes in the consumption of products across different industries. Of particular interest in this context are the energy and auto industries whose current products have suffered low demand due to changes in consumption trends. For instance, in the U.S., which provides the largest consumer market for automobiles, consumers have significantly changed their driving habits besides preferring other automobile models at the expense of the ever-profitable fuel-guzzling luxurious trucks and SUVs since the gas prices hit the all-time high of $ 4 per gallon (Strategic Management par. 1).

Consequently, analysts note that the American automakers have once again found themselves trailing their European and Asian counterparts in terms of responding to the ever-changing consumer needs and attitudes. Here, it is worth noting that most consumers will prefer energy-efficient models of vehicles relative to changes in the global fuel prices, which may not be decreasing in the near future (Strategic Management par. 3). Currently, many consumers are more concerned about the Changes in global warming, and as a result, their attitudes towards powerful SUVs and other fuel guzzlers are changing because the availability of alternative technology models in U.S. markets has broadened consumer options.

Furthermore, the increase in global fuel prices is also affecting other sectors associated either directly or indirectly with the auto manufacturing industries. For instance, it is certain that the high fuel prices have led to the high cost of steel, which is a paramount raw material in auto industries. Consequently, there is a need for automakers to re-evaluate their strategies relative to high fuel costs and to change consumer attitudes. Here, the essay looks at the mistakes committed by American automakers in their response to increasing fuel prices and changing consumer needs. Furthermore, the essay offers alternative strategies for automakers in adapting to changing market demands and developing new strategies.

The mistakes committed by U.S. Automakers

Analysts note that the problems facing the American auto industry now can be traced back to 1973 when the American automakers, as opposed to their European and Asian counterparts, decided to respond to the increasing fuel price by introducing powerful SUVs, pickup trucks, and big minivans, which replaced other small cars from the marketplace. By then, consumers were oblivious of the impact these models could have on their environment, but now things have changed, considering that millions of Americans are aware of the effects of global warming.

Moreover, as mentioned earlier, other international automakers are aware of the need to introduce new technologies such as fuel cells and hybrids to increase the demand for the existing car models. In fact, these new technologies promise to offer immediate and long-term benefits regarding fuel consumption (Strategic Management par. 4). On the other hand, for many years now, the American auto industry has been producing big and luxurious models at the expense of small cars. As a result, other international automakers such as Honda, Toyota, Hyundai, and Daimler-Benz are producing small and fuel-efficient cars that are gaining the preference of most American auto consumers.

However, the scramble to introduce new technologies into the American marketplace at the expense of the all-time famous pickup trucks and SUVs has led to a significant decrease in auto sales as of 2008. Despite that these automakers are following the right course with regard to changing consumer demands relative to increasing costs of oil, they have overlooked the need to address the factors affecting the global oil prices. Here, just like in the 1980s, the automakers have failed to heed the suggestions of most analysts who note that the oil prices are bound to remain high for the longest time ever due to factors associated with both the demand and supply sides. Moreover, studies show that most Americans are cutting down on the number of miles driven, and thus, this has occasioned the $ 4 per gallon gas price. As a result, it is certain that most American drivers have either reached or are headed to a tipping point (Strategic Management par. 6).

Conversely, many American automakers have not learned from past experience regarding the increase in oil prices. Here, it is worth noting that in the 1980s, American automakers were producing powerful fuel guzzlers at a time when gas prices were high. At the same time, these automakers were under stiff competition from their European and Asian counterparts who were producing energy-efficient models into markets that were already experiencing high gas prices compared to the American auto markets.

Certainly, one expects that American automakers having experienced the impact of high oil prices in the past would obviously be more careful with the current market conditions (Strategic Management par. 7). However, since the light trucks were fetching huge profits, it was hard for these automakers to shift from the production of profitable models to newer energy-efficient models that were infamous to most American auto consumers then. Thus, the major mistake committed by American automakers was to rely on short-term high-profit margins from light trucks at the expense of long-term issues regarding changing market demands and increasing oil prices.

The way-forward

Instead of wasting efforts to look at what the American automakers should have done better in the past, most analysts suggest that resources should be directed towards addressing the current market conditions and developing new strategies. Accordingly, market analysts recommend that the way forward for all American automakers is to develop new strategies regarding the production of competitive new technologies, including hybrid engines and hydrogen cars, to avert overdependence on oil and oil products whose prices are causing a stir in most global marketplaces. Certainly, investments in the new technologies should start now so that energy-efficient models are made available in the American auto markets in the next 15-20 years (Strategic Management par. 8).

Conversely, more short-term strategies should be aimed at achieving fuel efficiency for the current models through an incremental approach in order to prepare consumers in moving from consumption of light trucks to purchasing more energy-efficient vehicles. Therefore, instead of closing down on some branches producing light trucks such as SUVs in the hope that consumers will switch to new technologies almost immediately, automakers should instead strategize on different ways of using the available resources to generate more money that will be pumped into designing the new technology vehicles.

And more certainly, the American automakers should see the need to strike partnerships with each other or their international counterparts in sharing various costs implicated in developing new energy-efficient technologies (Strategic Management par. 15). However, analysts warn that consumers should not count on these new technologies as yet because the infrastructural costs involved are very high compared to the financial standing of most automakers.

Conclusion

Oil and oil products form an integral part of almost every economic sector in the world. However, due to various factors regarding the supply and demand for this valuable commodity, the prices of oil have been increasing unexpectedly. In this essay, we have discussed the impact of the high gas prices on the American auto industry relative to the mistakes committed by many automakers in their response to high fuel prices and changing consumer demands. From the foregoing discussions, it is obvious that most American automakers have not learned from their past experience in regard to the high oil prices in the 1980s. And come the year 2008, they are still repeating the same mistakes committed earlier. As a result, it is recommended that these automakers should gradually change from producing fuel guzzlers, which attract huge short-term profits to new technology models, which despite attracting limited profit margins, will result in enormous benefits in the long run.

Work Cited

Strategic Management. Behind the curve: have U.S. automakers built the wrong cars at the wrong time again? Web.

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Gas Prices in the American Auto Industry

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