Reference no: EM132736394

From the 1970s onwards, the US automobile industry, so long dominant in its ability to outcompete the automobile industries of other countries, came under threat from two directions - firstly from Japanese vehicle imports flooding into the USA, and secondly from a growing safety and conservation movement which saw the automobile as a major source of environmental damage and a threat to individual life and health. What was the reaction of the big three producers, General Motors, Ford and Chrysler, to these threats?

The chief strategy was to seek to influence the government to change the rules and/or retain those rules which already favoured US industry. The big three used their immense resources and significant role in the economy to lobby the government. They repeatedly emphasized the threat to employment in the USA from both foreign competition and stricter environmental rules. They sought and achieved informal quotas which shut out the full tide of imports, largely on the grounds of the threat of a significant potential loss of jobs. They also looked to limit the regulatory restrictions on the design of cars, which were intended to improve safety, reduce damaging emissions of pollutants and improve fuel efficiency, all of which they argued would impose an enormous cost on the industry, and which, in the view of the automobile manufacturers, were in some cases impossible to achieve. When bankruptcy threatened Chrysler, another strategy was actively developed- to solicit the financial support of government.

Another strategic response by the automobile manufacturers was to imitate the more efficient methods of the Japanese which made them competitive in the first place, and develop a mentality of innovation, meeting more readily the changing tastes of consumers. In the long term, this strategy was likely to be more effective, since it would satisfy a broader range of stakeholder groups. However, it was more difficult to achieve. The nature of any political economy, that is, any system of business decision making, draws attention to any inputs which influence market outcomes through their impact on the rules of the game. It is blindness to ignore this aspect of strategy, which is inevitably important for large companies. The larger the company, the more likely that this aspect of strategy becomes important.

REQUIRED

Briefly explain how economies of scale and economies of scope would be of use to motor vehicle manufacturing companies like Chrystler.