Fiat Chrysler Case

PESTLE

Economic factors during 2009

Financial crisis in 2008/09 impacted the auto industry as the collapse of credit market for major industrial borrowers hit all auto companies and their suppliers, with the drop in consumer borrowing leading to massive declines in sales (Rosenfeld, 2009).

World car sales decline by 5.3% in 2008 and world production of cars fell by 5.1% in the year (Unido, 2009).

The automobile industry is very responsive to economic cycles of boom and bust because buying a motor vehicle is a relatively expensive, enduring and credit based transaction for individual customers.

Surveys show that over 50% of car dealers reported increased rejection of car financing proposals (ec.europa.eu, 2014).

Reduced cash flows and profitability fell to new lows in the USA bringing about bankruptcies.

Investments and consumer spending decrease as consumer confidence decline leading many to postpone expensive purchases such as cars.

High fuel prices during 2009

Chrysler pioneered the minivan and acquired the Jeep brand, both of which have been hit by higher oil prices and reduced consumer demand (BBC, 2009).

Environmental factors

Carmakers are now aiming to increase fuel efficiency and renewable energy, lowering emission and fuel insecurity, and pursuing complete recycling of scrap. This transition is driven by rising fuel and commodity prices, external supply dependence, environmental pollution, global warming, tighter environmental regulations by governments, and pressures from consumer and environmental groups (Unido, 2009).

Consumers also search for high fuel efficiency cars, increasing the demand for small cars.

Porter’s Five Forces

Substitutes

The existence of close substitutes means customers can switch to substitutes if prices increase

Customers may also consider products’ price-performance characteristics in deciding to switch to substitutes

The higher the cost of operating a vehicle, the more likely people will seek alternative transportation options. The price of gasoline has a large effect on consumers' decisions to buy vehicles.

Threat of entry

Barriers to entry in to automotive industry are high as considerable capital expenditure and scale economy is required to be viable.

Volume carmakers will in future need to sell at least 5.5m vehicles a year to