I EXECUTIVE SUMMARY
With the continuance of the United States’s industrialization, the truck industry was at its peak before the 1980s strikes and concession from the United Auto Workers. These series of strikes were followed by recession that resulted in raising interest rates. The truck manufacturing industry was really in trouble, including Navistar.
As the largest truck manufacturing company in the United States, Navistar faces many competitors, and they are Ford, Freightliner, Mack, Volvo GM, Peterbilt, Kenworth. With 7 big players on the field, competition was really high, especially in terms of technology. With similar skills and technology to increase driver comfort and safety, each player must focus on something that will make them stand out from others. In case of Navistar, it is known for its best customer service among truck manufacturers, and the problem is should Navistar keep improving on the customer service, or should it cut cost to increase profit margin?
One of the alternatives that may solve Navistar’s problem is to improve with the customer service. Even though Navistar will have a lower profit margin, its good customer service will attract more buyers and in the long term will build customer loyalty. Another alternative is cost cutting to increase Navistar’s profit margin. Since cost cutting means no customer service, it will result in more and more dissatisfied customers and complains. Lastly, penetration to the South American market when there are potentially large markets in countries such as Mexico, Chile, Argentina and Brazil.
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After analyzing these three alternatives, focusing on customer service seems to be the best alternative for Navistar. With the high competition in the truck industry, Navistar must have one characteristic that will give it more competitive advantage.
II ENVIRONMENT ANALYSIS
With the end of the World War I in the 1920s, the United States continued its industrialization followed by the agricultural boom in the 1960s and 1970s. With the series of strikes and concession from the United Auto Workers, Harvester suffered from tremendous debt and outdated product lines, and decided to change its production lines into manufacturing trucks. However, the 1990s recession had resulted in rising interest rates and cost while at the same time meant rising fleet expenses and sluggish freight traffic. It was predicted that the economy will work itself out; while in fact, with the growth rate of only 2 percent, the trucking marketplace was really in trouble.
Unlike the unstability of the economy, the technology factor in truck manufacturing industry has come to its maturity. High technologies that were built to improve driver comfort and safety are used in all truck productions. Still, new research is being conducted by each manufacturer to gain more competitive advantage. For example, Navistar is planning to increase driver comfort through a new axle that are believed to improve driver maneuverability and increase aerodynamics and driver visibility. On the other hand, Ford is planning to increase driver comfortability through convenience items such as a dash-mounted cup holder, an innerspring mattress, and a television package.
III MAJOR PROBLEM
As stated in the article, there are 7 major player in the industry which are Ford, Freightliner, Volvo, GM, Peterbilt, Mack, including Navistar itself as largest manufacturer. They all have similar skill and technology in manufacturing truck in the sense of enhancing the driver comfort, safety, and fuel economy. As they all market similar products to the market, there must be a point that can be focused in the competition such as price which lead the company pursuing cost-reducing strategy or customer service that requires the company to focus on customer oriented-action.
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KEY PROBLEMS
· Slow growth rate of the industry that is caused by economic recession leading the decreasing of the growth to 2%.
· The products that the competitors manufactures are all alike as all of those truck manufacturer mainly focused on driver comfort and safety.
· Complicated and detailed difficult orders to be realized as the order specification from the fleet manager can be as much as 200 lines items.
· Relatively high driver turnover usually range from 80 to 200% that create a driver shortage due to low pay, long distance from home, and uncomfortable equipment.
· Cost reduction issue that contradicting with the company attempts to increase the quality of its customer service.
· Aggressive technology development in the industry as Volvo and GM had plans to improve part availability, computer system, and communication. It does not include the attempts from other companies on interior comfort by Freightliner, engine durability by Mack, aerodynamic model that improve fuel economy by Peterbilt.
Strengths
1. Navistar has a strong financial resources through its possession of numbers of financial services that lease financing, commercial physical damage and liability insurance subsidiaries.
2. Its marketing ability on focusing in the customer needs and wants through its excellent customer support programs such as expanded part programs, a new service maintenance kit for truck air conditioning system.
3. Great financial management system that can increase the efficiency of resource usage.
4. Successful partnership that combining Dana Corporation’s design expertise and manufacturing capability, Caterpillar’s engine, transmissions, clutches, etc. and Goodyear’s tires with Navistar’s ability to assemble and market those product.
5. Good Company image and brand recognition as the largest truck manufacturing company.
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6. Improvement in information system as the company use EDI that can shortened the inventory turnover from 33 days to 6 days and even as little as four hours inventory in some instances.
Weaknesses:
1. Its narrow range of products that not focused on driver comfort and safety.
IV SWOT ANALYSIS
Strenght:
1. Strong financial resources.
2. Good relationship with several parts manufacturers such as Good Year, Dana Corporation, and Caterpillar; several supplier and customer..
3. Customer service excellence especially on customer support.
4. Superiority in Glider kits..
5. Marketing ability.
6. Effective Information system (EDI).
7. Strong position in the industry as the largest truck manufacturer in the US.
Weaknesses:
1. Lack in products that can increase driver comfort as Navistar only produced 250 limited edition units that focused on this particular options.
Opportunities:
1. Emerging new markets of the commercial market segment which is class 3(10,001 to 14,001 lbs GVW) and 4(14,001 to 16,000 lbs GVW).
2. Sales increasing for class 1(6,001 to 10,000 lbs GVW).
3. Potential growth expected for class 6 and 7.
4. Expected economic recovery in 1990 showed a good sign.
5. 35 increase in built-to-order compared t0 1985f or class 8.
6. Tremendous opportunities in exporting to other countries especially to those South American countries such as Mexico, Chile, and Peru.
7. Increasing GDP growth in Mexico that leads the increase of demand for medium and heavy truck.
Threats:
1. The emerging threats possibility of strikes and concessions to the United Auto Workers(UAW).
2. Recession threats that caused economic growth rounding about 2% from 1990 to 1991.
3. The declining market of class 8 trucks.
4. High Driver turnover that translated into driver shortage condition.
5. Numbers of strong local competitors pioneering the necessary technology enhancing the driver comfort and safety. This condition lead to more intense competition in the local market as most products in the market are all alike.
6. Domination of foreign and domestic market in international market such as in Chile and Mexico.
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7. Mexican truck has more average age of 12 year compared to 6 year average age in the US.
V EVALUATION OF ALTERNATIVES
1. Increase its focus on customers’ satisfaction by manufacturing high durability and comfortable trucks that focus on the drivers’ comfort and safety; and also focusing on fleet manager’s need and wants.
Pros:
· Attract more buyers.
· Creating of customer loyalty.
Cons:
· High costs.
2. Cost cutting strategy, by implementing high technology in the production of trucks.
Pros:
· High profit margin.
· High efficiency.
Cons:
· Inability to satisfy customer’s needs and comforts.
3. Penetration to the South American market when there are potentially large markets in
countries such as Mexico, Chile, Argentina and Brazil. Navistar can also open up an
assembly line in South America.
Pros:
· Low labor costs
· Large markets approximately 6500 trucks projected would be sold in 1992
Cons:
· Difficulties in penetrating to the South American market.
· Time consuming especially finding strategic alliances to be successful in marketing their trucks in the South America countries.
VI RECOMENDATION
From the group discussion, we come up with the best recommendation for Navistar to implement. One of the recommendation is Navistar should focus on the customer satisfaction by producing high durability product, providing comfort and safety for truck drivers, and after sale customer support. By manufacturing such quality of trucks, Navistar will be able to attract more customers especially in the South American market. Also, by manufacturing good quality trucks, customers will start to have beliefs in the Navistar products, and thus creating customers loyalty. The underpinning reason for maintaining and possibly increase the customer support is because those products from other companies and Navistar itself are all alike in technological manner. Consequently, Navistar should be better compete on intangible factors as point to compete. Secondly, the products that this company sells are falls to specialty good category which requires the buyer to really shops around and choose the best one. While the buyer are mostly expert and knowledgeable about the product and need to get products that can return their investment, pursuing customer-oriented action is the best alternative for this company in this industry.
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Another recommendation that we come up with is for Navistar to penetrate to the South American market where there are potentially large market exist there combined with customer-focused strategy. This will be a great opportunity for this company which really support the possibility of its strengths within intersecting with this opportunity and creating leverage. For Navistar to be able to compete in the South American market, it needs to be able to produce good quality and high durable trucks, like Mexican truck fleet which have estimated age of 12 years. Having to open up an assembly line in the South American market will also reduce the labor cost, since labor cost in the South American countries are low. Therefore, it can be expected that the company can realize a high profit margin out of this market. With this recommendation, we hope that this company will be able to maintain its current position in the industry by preventing all possible way that can trigger the problems and constraints from emerging as internal and external factors effecting the company intercepting.
