Us Auto Gap Analysis

US Auto Gap Analysis

USAuto is a pioneer in the auto industry. They currently have the first hybrid engine in the patent process. Unfortunately, high labor costs in the U.S. have hurt them financially. This has caused a problem for USAuto financially. They have realized that they need to turn to other options in order to continue business and survive financially. An option for USAuto, brought on by the CEO, is to turn to other countries to assemble USAuto’s automobiles. Their first option was to go to AutoMex, a powerhouse in marketing and manufacturing automobiles, based in Mexico with a proposal for partnership. (University of Phoenix, 2007).

AutoMex is looking to expand their business. They believe that a partnership with USAuto will be beneficial to their business. It will give their laborers an opportunity to educate themselves about the new technology and eventually will allow AutoMex to enter into the auto industry and be able to manufacture their own cars. If USAuto and AutoMex can negotiate a partnership together they will both benefit and reach their ultimate goals.

After going through the scenario several alternatives were formulated. This allows USAuto more options rather than just trying to negotiate with one company. The alternatives are evaluated and the best alternative is discussed. The implementation of this alternative is also reviewed.

Situational Analysis

USAuto was one of the first pioneers of the auto industry. Now USAuto is struggling to maintain a foothold in the industry they helped pioneer. There are many factors in why USAuto is losing its foothold in the auto manufacturing industry. The plants that once used to be the top in the industry are now outdated and cost too much to maintain and run. The labor contracts that were negotiated years ago in the company’s heyday have ensured that inflated labor costs will put a squeeze on profitability for years to come. One of the biggest losses is USAuto’s market share to foreign auto producers who have built domestic plants to keep pace with U.S. demand.

To date, foreign carmakers have not expanded into Central or South America, but given the ease with which they entered the U.S. marketplace, they assume local manufacturers, such as AutoMex, would provide little resistance. (University of Phoenix, 2007)

AutoMex is a major player in the Central and South American auto marketplace. Unlike the U.S. auto industry, which has been led by large manufacturers, AutoMex began as marketer of new and used U.S. autos in the Mexican marketplace. This experience of marketing products that are manufactured by other firms has both underscored the value of the marketing function, and at the same time created a strong desire at AutoMex to have a product of its own to market rather than just sell the products of others. AutoMex satisfied that desire to some extent with manufacturing, but quickly realized that its corporate comparative advantage, as viewed by others like USAuto, was its ability to marshal low-wage, limited skills workers in assembly locations.

AutoMex has come to believe that low-wage is not truly a comparative advantage, because any other competitor can beat it by simply investing in productivity-enhancing equipment. This belief on the part of AutoMex has driven it to seek relationships that create skills-transfer to its workforce. AutoMex concludes that if it can become a leader in manufacturing in a high-technology environment, it will transform itself into a world-class competitor in auto manufacturing and marketing.

USAuto’s main officers have realized that if nothing is done to improve their market situation in the industry then USAuto will not be around in a few years. The Executive Vice President of USAuto is Linda Henderson. Linda would have easily deduced that USAuto’s high labor cost could sink the company if not drastically reduced. Her plan is to share the hybrid engine technology with a company like AutoMex in exchange for a partnership deal. The hybrid engine would improve everybody’s product, and the partnership would decrease overall labor costs and provide stiff competition for foreign dealers entering Central and South America.

Mary Sackrider is USAuto’s General Counsel. Mary has been USAuto’s General Counsel for the last ten years. The experience that she brings, besides being part of USAuto’s legal department, is that Mary was an assistant U.S. Attorney working to enforce anti-racketeering statutes. During that time, she developed a knack for negotiating and plea bargaining. While she is not a specialist in intellectual property, she is familiar with the elements of patent law.

Luis Alvarado is AutoMex’s Chief Executive Officer. Luis has worked in auto manufacturing in both the U.S. and Mexico for the past twenty years. He