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Posts Tagged ‘factor’

On the face of it, automotive engineering and customer care have little to do with each other. Of course, everything that engineers do is aimed at satisfying the customer and offering higher and higher value, but the two disciplines of engineering and customer care seem to be on two different ends of the spectrum. One would imagine that the engineers do their job and then it is the role of customer service department to interact with customers and deal with their issues. However, if you are willing to look a little beyond the surface, you will find that combining engineering and customer care can be highly advantageous to both the automotive industry as well as the end customer.

Let us begin by looking at what exactly an automotive engineer does. What does his job role entail?

To begin with, it is the role of automotive engineers to design as well as develop various automotive systems like engines, electronics, brakes, fuel systems, suspension, etc.
Secondly, they are also responsible for designing, developing, operating, managing and maintaining automotive assembly lines.
Their job also involves dealing with suppliers for different parts made to their exact precision, managing their costs as well as delivery.
They also have to design, develop and implement a number of tests to ensure that individually and collectively, the parts function optimally and safely. Ensuring safety of the final product is part of their job role.
Finally, it is the role of an automotive engineer to gather data from service centers, repair shops and end customers to identify the problems they have faced in operating the vehicle and them implement adjustments in design as well as the manufacturing process to remove the faults and improve the vehicle.

Now, that the job description of an automotive engineer is before us, it becomes easier to understand how customer care training can be helpful to them. The final point that concerns interacting with customers can be the one factor that gives one company an edge over the others in the industry. If the company has its ears to the ground and is aware of the needs as well as the problems of their customers, the products designed by them are sure to offer greater value to those who use them.

Now, as you can see, getting customer feedback is already a part of the job role of the automotive engineer. But often, he gets information that is second hand. For instance, a customer may make a complaint to a customer care executive, who will pass it along to the engineer. But, it is important to remember that the customer care executive is not technically trained. Neither can he fully understand the exact problem of the vehicle, neither can he ask appropriate question to clarify a point. When the information reaches the engineer, it hardly explains the exact nature of the problem. As you can see, if the engineer was himself dealing with the customer, he would be in a much better position to gauge the problem as well as create a solution.

During the past year, the three major American automakers, Ford, GM and Chrysler have witnessed a ghastly drop in sales with estimates reaching levels not scene in 27 years.  Ford reported sales decreases of 30 percent, while Chrysler’s sales are down 35 percent for this month, leaving GM the biggest loser with its sales declining approximately 45 percent from last year’s.  Robert Shultz, S&P’s lead automotive analyst, has warned that without the help of federal aid, the big three may be endanger of filing for bankruptcy.  Renee Rashid-Merem, a spokeswoman for GM, has denied these claims saying, “Bankruptcy is not an option GM is considering.” 

Investors don’t seem convinced of a speedy recover as stock prices continue to fall in recent months.  According to a report published by Global Insight in early October, auto sales are forecasted to reach recession levels by the end of 2008 and fall even lower in 2009.  It is no surprise that top executives from all three motor companies find themselves before Congress asking for 25 billion in government loans to provide relief in times of economic hardships.  Many critics believe there should be no relief for these automakers, allowing the free market to decide their fate.  If conditions persist, there is a strong possibility that the big three may cease to exist in the near future.  Right now may be the beginning of an automotive ice age.

What factors led up to the rapid decline of auto sales throughout the American auto industry?  In the beginning of the year, high gas prices pushed consumers out of trucks and sport utility vehicles into cars and crossovers.  Automakers saw a small portion of their profits decline as consumer preference changed from vehicles yielding higher margins to less pricy alternatives.  U.S. automakers were especially hit as many consumers switched to foreign automakers like Honda and Toyota because of the smaller vehicles they were offering.  The credit crunch would be another factor attributing to a portion of declining sales.  Because new automobile price tags are a high percentage of the averages consumer’s yearly income, it is no wonder that failure to obtain adequate financing by the average consumer would constitute such a result.  Even with financing, consumers are hesitant to spend money as economic conditions continue to worsen.  The unsettling change in consumer taste is perhaps the biggest factor contributing to the decline of sales throughout the auto industry.  Simply put, people just aren’t buying cars anymore.

Declining sales volume is a big problem for automakers like Ford and GM considering that both motor companies are highly leveraged.  In other words, they exhibit high operating leverage.  Without getting into the technicalities, operating leverage is simply the ratio of a company’s contribution margin to its profits.  Low operating leverage exhibits low fixed costs and high unit variable costs, while high operating leverage exhibits high fixed costs and low unit variable costs.  A higher operating leverage indicates that a change in sales volume will have a relatively greater impact on profits.  This is desirable for a company who is operating above the breakeven point, or where revenues exceed costs.  As sales volumes increase, fixed costs remain the same and variable costs are low so increasing sales volume does not drastically impact costs.  Both Ford and GM are operating below the breakeven point and because they exhibit high operating leverage their profits have suffered by a larger degree due the burden of high fixed costs.  High operating leverage is the reason why sales volume is such a crucial factor for the survival of these U.S. automakers.  Revenues must exceed costs so profits remain respectively less effected by higher fixed costs. 

A large factor contributing to Ford and GM’s fixed costs is their labor force.  United Auto Workers’ union has set up negotiations for job banks in which workers are paid while there is no work at the plant.  If Ford and GM aren’t selling high volumes of motor vehicles and workers are still receiving pay checks, than these automakers won’t be able to cover their fixed salary expenses with such low sales volume.  To try and alleviate a great portion of their fixed costs, Ford, GM, and Chrysler are offering buyout programs or early retirement offers to employees on salary.  Chrysler says they are attempting to reduce their salaried staff by 25 percent by the end of the year.  GM has already eliminated about 5,100 salaried employees and cut benefits for current employees and retirees.  At the same time, all three automakers are cutting prices and starting their year-end sales early in attempt to boost sales volume.  If the big three can decrease their fixed expenses and increase their sales volume enough to cover costs and exceed the breakeven point, they will have a chance of survival.  It is hard to reach any conclusion about what the future holds for Ford, GM and Chrysler. It is possible that the world may be witnessing the first ever automotive ice age.