Rule of 3...

I can imagine those days when people used to travel in caravan for doing business. It takes 4-5 days for 100miles journey. Things have changed afterward when in 1893 Duryea brothers launched the first one cylinder automobile in US. They created blue ocean in automobile industry. After that Henry Ford introduced new design car Model T that was in black colour only and without any delay General motors came up with passenger car in different colours with more comfort. Competition started thereafter and many more players jumped into this industry. Automobile industry has evolved with lot of technological innovation that gave comfort to end consumer. Many players came up over the years Nissan, Toyota, VW, Hyundai, Chrysler and they had enjoyed the fruits of the rally that primarily led by demand rose globally. But with the rising competition and slowing pace of innovation, this industry is challenged by time and again.

Over the years, these companies built themselves in terms of production capacity and resource pool across geography. But all of sudden, subprime crisis that turned into financial and liquidity crisis gulped down the demand from the market. US automobile industry witnessed negative growth i.e. more 13%. All the three big giant Ford motors, General motors and Chrysler on the verge of bankruptcy. To survive, the only hope left is consolidation. That in turn will reduce the operating cost and other overheads too. Those who managed to diverse globally with fuel efficient technology are still surviving but the global meltdown like this, companies have no other option but to consolidate.

The key thing here is Innovate or Die. Those who continued to innovate and have a leading edge will be merged during the crisis time and for those who shortfall in their competency matrices will die. 3 players will be there in any industry in long run.

The reason is very simple. Consolidation in tough times gives birth to monopoly. But over the long run, new players come up when the tough time eases out and again perfectly competitive market creates. It’s a very cyclical in nature. Tough time brings consolidation that compounded further to convert in monopolistic market and monopoly in the system gives an opportunity for players to come and set up their shop.