Sep 10th, 2015 by Scott Hebert
Although it is useful to examine an industry as a whole, when it comes to strategic decision making, it is far more useful to divide the industry into more manageable segments. Industry segmentation allows the development of segment specific strategies that can more accurately target the chosen market. One method of strategic segmentation is to base the segment on product-related variables (De Kluyver & Pearce, 2012). When segmenting the US automotive market on product-related variables, size, design, and power-plant are obvious segmentation variables. One such strategic segment is the compact car powered by a hybrid electric engine, also known as a compact hybrid electric vehicle.
The outlook for the compact hybrid electric vehicle segment in the US is grim at best. In 2008, J.D. Power predicted that sales of hybrid electric vehicles would triple in the US by 2015. It the time, this segment made up only 2.2% of the total US automotive market, and the increase was only to 7% (Hanson, 2008). This was at the height of the global recession that had begun in 2007 in the US. Inexpensive compact cars with incredible gas mileage seemed like a sure bet. Two years late, GM’s Bob Lutz predicted that hybrid electric vehicles would never be more than 10% of the total US market. At the time, sales of hybrid electric vehicles had climbed to 3% of US sales. To put that in perspective, only 500 hybrid electric vehicles were sold in January 2010 (Terlep, 2010). Finally, in 2015, Auto Alliance reported that hybrid electric vehicles enjoyed 2.9% of total US sales (Auto Alliance, 2015).
Clearly, the US market for compact hybrid electric vehicles is not a growth market. Over the last seven years, the segment has seen little to no growth. During that same time frame, Americans have shifted from buying cars to trucks, a trend that had reversed itself when the recession began in 2007 (Auto Alliance, 2015). Bob Lutz has indicated that GM was losing money on hybrids in 2013, but was compelled to continue producing them to meet US regulations (Terlep, 2010). It can easily be said that the US market for compact hybrid vehicles is unattractive at best.
Auto Alliance. (2015). Cars Move America. Retrieved September 9, 2015, from http://www.autoalliance.org/files/AA_CarsMoveAmerica.pdf.
De Kluyver, C. & Pearce, J. (2012). Strategy: A View From the Top (4th ed.). Boston: Prentice Hall.
Hanson, R. (April 7, 2008). J.D. Power predicts U.S. diesel and hybrid sales to triple by 2015. Motor Authority. Retrieved September 10, 2015, from http://www.motorauthority.com/news/1024598_j-d-power-predicts-u-s-diesel-and-hybrid-sales-to-triple-by-2015.
Terlep, S. (February 13, 2010). GM exec:Hybrids unlikely to take more than 10% of U.S. market. MarketWatch. Retrieved September 10, 2015, from http://www.marketwatch.com/story/gm-exechybrids-unlikely-to-take-more-than-10-of-us-market-2010-02-13.