The automobile manufacturing industry is one of the high labor and capital intensive sectors in the world today. The industry is composed of giant companies that manufacturer cars, trucks, and buses. The companies in the industry incur numerous costs throughout the production process. Automobile firms focus on the changing demands and tastes of the targeted customers. Successful corporations in this industry, therefore, focus on the issue of consumer confidence. The NAICS Code for the automobile manufacturing industry is 336111. The automobile manufacturing industry is dominated by various multinational corporations. The first one is General Motors Company (GM). The firm produces brands such as Cadillac, Buick, Chevrolet, and Pontiac. The second firm is Chrysler and produces Dodge, Jeep, and Chrysler. Toyota Motor Company is a Japanese corporation that sets the pace in the industry (Galvin, Goracinova, & Wolfe, 2014). The fourth company is Nissan and is based in Japan. Ford Motor Company is the fifth one and produces brands such as Volvo, Ford, and Lincoln (Johnson, 2014).
According to Porter’s Five Forces Model, the threat of new players is usually high in profitable sectors. However, the emergence of new competitors eventually results in decreased profits. Customers’ bargaining powers describe how consumers can dictate the business initiatives undertaken by a given company. The bargaining power of suppliers explains how the powers of providers of different raw materials and products influence a firm’s strategy (Galvin et al., 2014). The threat of substitutes in the market can encourage consumers to switch to alternative products. Industry rivalry focuses on the competitiveness of different firms.
Porter’s Five Forces can be used to analyze the performance and attributes of the automobile industry (Johnson, 2014). The interesting lesson gained from this study is that a company that utilizes the model effectively will identify the potential threats and strategies that can eventually drive business performance.
Porter’s Five Forces Model
The automobile industry remains labor and cost-intensive. Most of the companies in the industry have enough resources and assets that make them competitive (Bernard, 2013). A newcomer or player in the sector should consider each of the five forces presented below.
The threat of New Entrants
The threat of new companies or entrants in this industry is extremely low. Companies that want to enter this industry might have adequate finances and resources. The startup cost for a new manufacturing facility is extremely high for this industry (Johnson, 2014). A new firm lacks brand equity and must work hard to attract more customers. The existing laws and regulations in different countries make it hard for more companies to join the industry. For example, various policies are focusing on sustainability, green accounting, and safety. Most of the companies in this industry have effective supply chain networks to acquire raw materials and manufacture the intended automobiles.
Entry into this industry requires enough capital, labor, technical know-how, and managerial expertise (Lu et al., 2015). For instance, a company planning to start its operations in the Japanese automobile industry will find it hard to compete in the sector. This is the case because the industry is dominated by giants such as Nissan, Toyota, and Mazda (Peters et al., 2014). In Germany, companies such as Volkswagen have been battling with the problems of sustainability and emission. The undeniable fact is that Volkswagen commands a rich culture and financial resources. A company planning to enter the German automobile manufacturing industry will be unable to compete successfully in the country. The country’s automobile industry is associated with big corporations such as BMW and Mercedes Benz (Johnson, 2014). These examples show conclusively that the threat of new competitors in the industry is extremely low.
Threat of Substitutes
This force explains how the availability of substitute or alternative products can transform the performance of different companies in a given industry. In the automobile manufacturing industry, the threat of substitutes is something complex and hard to analyze. This is the case the players in the industry come up with complex products that might be hard to substitute. Within the past three decades, cars have become a common mode of transport. However, the issue of product differentiation can be used to explain the availability of substitute goods. For example, a person looking for a saloon car can sample several products from the same company (Lu et al., 2015). This is the case because a company like Toyota delivers different brands that can satisfy the changing needs of targeted customers. Additionally, many companies such as Nissan, Honda, and Toyota have been observed to produce cars that have matching specifications.
Some customers might go further to purchase a given product from the used car market (Lu et al., 2015). This is a clear indication that the used car subsector is a major source of substitutes in the industry. The emergence of electric trains can be a substitute mode of transport. This discussion shows conclusively that many customers can select a wide range of options or products in the market. The companies operating in this industry should be aware of these substitutes and embrace the best models to market their cars and trucks successfully (Guerzoni, 2013). The number of people using cars for transportation is on the rise. This force is therefore relatively moderate in the automobile manufacturing industry.
Bargaining Power of Buyers
This force is used to examine the power of different buyers in the automobile industry. The major customers or buyers of automobiles include individuals, government agencies, and commercial companies. These customers have what it takes to dictate the prices and quality of different cars (Ingrassia & White, 2013). The customer has been observed to set the pace in the car industry. For instance, many customers have been purchasing superior cars that resonate with their tastes and expectations. The customers have also been dictating the prices offered by different companies in the industry. Companies that fail to produce superior cars will find it impossible to retain or attract more customers. An individual who plans to purchase a new car will use the internet to collect adequate information about the existing products. The acquired information will ensure the right decision is made.
This analysis indicates clearly that the power of customers in the automobile industry is extremely high (Lu et al., 2015). The modern consumer is aware of the emerging trends in the sector. The customers are also after superior products that can meet their needs (Bernard, 2013). Experts and analysts have indicated clearly that the future consumer will be informed about the emerging issues in the sector. Ingrassia and White (2013) believe strongly that the future consumer in this industry will be focusing on superior cars that are capable of promoting environmental sustainability. They will also be aware of specific cars that are fuel-efficient, comfortable, affordable, and safe (Bernard, 2013). Companies that fail to produce cars that deliver these expectations might become less competitive.
Bargaining Power of Competitors
Many companies in the automobile industry require a wide range of raw materials, parts, and labor from different suppliers. The suppliers are also required to deliver quality materials promptly. The players should also design powerful supply chains to drive business performance. The agreeable fact is that most of the firms depend on some suppliers to acquire different parts. The timely delivery of the materials dictates the speed of production. Companies that rely on a single supplier to get specific raw materials will be forced to adjust their business models. This change has the potential “to produce a monopolistic situation” (Guerzoni, 2013, p. 28). The manufacturer should go further to satisfy the emerging needs of the supplier. A good example is the Toyota Company. This company liaises with its suppliers to ensure the production process is completed successfully.
The good thing is that many suppliers and companies are currently offering a wide range of raw materials and spares in the automobile industry (Hwee, 2015). This development has encouraged more companies to attract different suppliers in an attempt to realize their business needs or objectives (Bernard, 2013). Suppliers can establish sustainable relationships with different manufacturers to produce desirable results. From this analysis, it is agreeable that the power of different suppliers in the industry is average. Companies in this industry should focus on the power of the existing suppliers to support their business models. By so doing, the firms will find it easier to realize their business goals.
The automobile manufacturing industry has matured within the last three decades. Consequently, the current level of competition is fierce. The projected outcome is that the level of rivalry will continue to increase in the future (Peters et al., 2014). Most of the players or companies in the industry have been focusing on the best measures in an attempt to become leaders. The players use their resources and finances to dictate the future of the industry. Some of the leading automobile companies have been focusing on new technologies, emerging consumer needs, and safety standards to set the pace in the industry (Hwee, 2015). The other companies go a step further to copy such trends. To achieve these goals, companies must utilize their financial resources and technologies effectively.
A company like Toyota has been leading the way when it comes to the use of six sigma and total quality management (TQM). The approach has increased the firm’s economies of scale. This is the case because the firm produces numerous cars without incurring numerous costs. These strategies have made it easier for the company to minimize wastes, produce superior cars, and support the diverse needs of the consumers (Peters et al., 2014). Some companies such as Mercedes Benz and Bavaria Motor Works (BMW) have been on the frontline to deliver comfort and luxury to the targeted customers. These developments and goals explain why the customer is keen to acquire a product that supports his or her needs (Guerzoni, 2013). It is therefore agreed that the level of rivalry in the industry is extremely high. A new firm that plans to enter the automobile industry should reweigh its options and be prepared against these forces.
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