Competitive Strategies and Goverment Policies

The automobile industry has had many changes in trying to compete in the real-world market. The United States (US) government policies and the competitive environment have created many events that have forced the auto industry into re-evaluating their businesses and market status. This paper will review merger activity, government policies and regulations, and global competition within the auto industry.

Merger Activity

Mergers create benefits for businesses. “Firms that merge can take advantage of a range of economies of scale, such as cost savings associated with marketing and technology,” (“Growth, Mergers, and Acquisitions,” 2013). Firms that merge can use fixed assets of one company to produce output of the other company. The firms will share knowledge of their companies to help the merging company understand operations from another viewpoint. This gives a broader perspective to each company to expand their knowledge within their industry.

Disadvantages may also exist within a horizontal merger. When two large companies merge, there is diminished competition, (“Growth, Mergers, and Acquisitions,” 2013). This could cause prices to rise so that consumers would pay more for the same products. Competition tends to cause prices to be reduced. Another disadvantage is that customers may not have a choice between products when companies merge. If the two companies decide to combine production and make the same product, the consumer can lose the option of choice. This could also cause the selling price to be higher than it was before the merger.

Mergers between the United States automobile manufacturers and foreign automobile manufacturers have been a way for the United States auto industry to compete in the global market. These horizontal mergers are used by companies, such as Chrysler when they merged with Fiat, an Italian auto maker. This merger was used by Chrysler because they were forced in to bankruptcy. The companies needed an investor...