the effects of the proposed scenarios on the automotive manufacturing industry in the United Kingdom between now and 2020 and

Abstract

The chief executive officer of the Royal Dutch Shell Jeroen Van der Veer predicted that the demand for oil and gas would be far much higher than 2015 and he outlines two scenarios that will emerge in response, which he called, scramble and blueprints. This paper is going to look at the effects of the proposed scenarios on the automotive manufacturing industry in the United Kingdom between now and 2020 and between 2020 and 2040. The paper will start by outlining the scenarios and identifying the various Auto makers in the UK before looking at the UK motor industry against the backdrop of the scramble and blueprint scenarios.

Introduction

Using the Porter’s 5 forces strategic planning model, this paper will look at how the auto industry in the UK will be affected by the predicted shell and blueprints scenario. To make long term strategies, shell has been developing scenarios since the 70’s and the latest scenario is the Scramble and Blueprints that illustrates the routes the world will take in the face of the energy crisis that will hit the world as from 2015. The scramble route will be an exciting route with a lot of competition but will grind to a halt with unimaginable consequences (Veer 2008). The scramble scenario is a path of less resistance where the nations will make haste while the sun shines meaning that they will run to secure energy resources and there will be losers and winners. However, a time will come when all the fuel energy will be depleted and the race will come to a painful end. This method solves no problem because the supplies will run short leading to high energy prices, political response and volatility.

However, the Blueprint option will have a lot of problems at the start and the ride will be bumpy but due to the ingenuity and technical innovation, the excitement will be felt at the end. Whichever route is taken, the problem cannot be solved without the addition of other energy sources in the world in order to keep up with the increasing demand occasioned by the population upsurge (Veer 2008). However, the Blueprints route will be disorderly at the start but less painful toward the end because positive coalitions will emerge to ensure energy security and enhance more innovation. This scenario will work hand in hand with the environmental sustainability path and there will be growth of number of cars that use alternative energy sources like electricity and hydrogen. The relationship among automotive industry, shell scramble and the scenario in blue print will be manifested in these alternative sources of energy because of their impact on the industry. The case in this paper is the UK’s automotive industry.

2020 Industry Structure Analysis

Using the five forces model it is possible to predict how the automotive industry structure will be like in the year 2020. The demand that will outstrip supply will have taken effect in the year 2015 meaning that the supplier concentration will be lower than today. The importance of volume to the suppliers will have faded and the importance of volume will have shifted to the consumers who will have to scramble for the dwindling resources, though efforts will not have been made to develop other sources of energy.

UK will be definitely one of the countries that will rush to secure energy resources for itself because of its economic and political standing in the globe and the threat of the dwindling resources will not have been felt by the Britons meaning that the Auto manufactures will continue manufacturing top of the range fuel guzzlers because there will be ready market at home. However, there will be market for these outside Europe, especially in the countries that will have emerged as losers in the scramble for the resource. Now that the scramble option does not have room for creativity (Veer, 2008), the automakers won’t have started making substitutes meaning that there will be no threat of substitutes.

Still, in the initial phase of the scramble, the situation will not be that complex to bar the entry into the market of other brands into the UK market thus there will be fewer barriers to entry and thus the competition from foreign models will still be there in the automotive industry. The fourth force is the degree of rivalry between different car manufacturers and it will remain as it is now, because in the first place, there is no threat of substitutes and secondly, all the manufacturers will be facing the same level of supply problem. They will continue to make the top of the range vehicles because the threat of supply won’t be that effective in UK. The last force in this model is the buyer power. The prices of oil will not have risen that much because as said earlier, UK will be in a vantage position to secure the resource meaning that the market for the fuel guzzlers will still be there because the rise in the fuel prices will not be that large to affect the buyer power. In short, the scramble option will reduce the supply but not by large margins that will affect the rate of auto production and will also not affect the buyer power by serious margins. However, the other three forces which are the threat of substitutes, the barriers to entry and the degree of rivalry will remain constant during the first phase of the scramble. This means that the auto industry in the UK will remain healthy because of the fact that the force of supply will not deteriorated.

On the other hand, if we look at the future of the UK auto industry in view of the blueprint scenario, we can see an auto industry where nations are forced to start addressing the issue of fuel crisis from the onset and there will be no selfish rush for the commodity by nations (Veer 2008). In fact the blueprint path will focus on the economical use of the resource all across the world so that the resources can last longer as the problem is being solved. This means that the supply will be low and the prices high. The UK automakers especially the ones who make fuel guzzlers will be hard hit because the sales will be down. This will force the makers to produce cheaper alternatives which will increase the rivalry in the fuel friendly car market. The threat of substitutes will also increase because there will be more varieties of cheaper models to choose from and the buyer power will go high because the alternatives will be easily accessible. A wider population and the price of the fuel will not affect their power so much because of the low consumption ability of the available alternatives.

Auto Industry Structure Analysis for 2040

By 2040, the disastrous effects of the scramble option will have started to be felt. As described before, the scenario is not innovative in nature. There will be a mad rush for the fuel resources initially but the rush will come to a dead end that will have painful consequences especially for the automotive industry (Veer, 2008). By 2040, if the scramble route will be followed, there will be negligible fuel resources in the world and none of the countries will have a competitive advantage over the other because there will be nothing to scramble for. The supply will be at an all time low and some of the fuel companies will have closed shop as well as some of the auto makers meaning that the supply of motor vehicles will reduce. This will be because of the cost of the main automotive input that is fuel. However, there will be no substitutes (alternative forms of energy) because the scramble option will be a myopic option that will not lead in the creative innovation of substitutes to suit the dire condition that the world will be facing.

The second force to look at is the Barriers to entry. This is one force that can go either way. Currently, very few auto makers in the UK have started making electric vehicles or vehicles that use alternative forms of energy, while auto makers in the other parts of the world have started making such cars. These include Volkswagen and GM. Now that the initial phase of the scramble will ensure that there is enough fuel resource in the UK, the automakers will most likely start making alternative innovations. The condition in the world will make it easy for auto makers that already have vehicles that can use alternative forms of energy to make entry, and in this case, three forces will come into play. These are the barrier of entry where there will be less to bar the entry of overseas automaker that can provide alternatives, the second force is the threat of substitutes (vehicles) meaning that the Auto industry in UK will suffer because of the entry of products that can substitute what they make and finally the degree of rivalry will be high among the new entrants with alternative vehicles and low among the UK automakers who will be suffering from reduced sales.

The fifth force that will be affected is the buyer power. In both cases the buyer power will go down. This is because vehicles that use alternative energy are very expensive to buy and on the other hand the oil prices will be too prohibitive and only a few will be able to buy fuel (Veer 2008). The scramble option therefore will precipitate crisis in the UK auto industry and it will be very painful for both the automakers and the consumers. Some of the automakers especially the ones that specialize in fuel guzzlers will have no option but to close shop because their products will no longer be useful under the situation.

Blueprint Scenario and the industry in 2040

In this phase, the shape of the UK auto industry will have changed completely. This is because, due to innovations motivated by the oil crisis and the sustainable environment policies (Veer, 2008). Most auto makers will have shifted to making engines powered by alternative energies other than gas and diesel meaning that hydrogen, solar and electric powered cars will be more than the diesel/gas powered cars. All these alternatives are renewable and using the five forces model, the force of supply will remain constant to all. This means that it will remain ineffective in the new structure. The substitutes will be highly threatening because it will increase the varieties for the consumers. The rivalry will be intense among the automakers because they will all have new products they are trying to push in the market and the intense rivalry will make the entry of new players very hard unless those players make their entry before this innovation process starts. The power for the buyers to buy the models will decrease even though the maintenance cost will be low because the initial cost of the models will be high and majority will not afford. This means that by 2040, the automotive industry in UK will be struggling

Bibliography

Veer, J V. 2008, Shell Scenarios: Blueprints or Scramble, Retrieved on Dec 19 2009 from http://peakenergy.blogspot.com/2008/01/shells-scenarios-blueprints-or-scramble.html