The US Auto Industry and Economy

Automobile history initiated with European technological inventions that happened in the 18th and 19th centuries when the United States of America started mass automobile productions. Subsequently, the world economic recession that triggered World War II resulted in the consolidation of the highly fragmented automobile manufacturing market that eventually enhanced the road network system that greatly accelerated the sales of automobiles. Later, design, service as well as speed trademarks became the competing factors in the automobile industries as witnessed by the increasing popularity of the United States NASCAR racing car model.

As the automobile industry matured, car manufactures had to comply with labor unions, changing government controls as well as consumer expectations for yearly changes in product design. As the automobile industry continued to advance, trade conflicts emerged that resulted in the establishment of Voluntary Export Restraints and new queries about the importance of globalization. As time elapsed many people started to embrace the automobile technology as it enhanced economic growth and personal freedom. The adoption of the automobile industry leads to emerging of other new automobiles giant producers such as Japan and India (Peterson, 2004).

The automobile industry is known to have come of age in 1914 with Henry Ford through the bulky production of cars. This helped in the development of the industry that saw the assembly lines of his car plant. Ford productions made cars to be produced in masses as well as become popular among the elites.

During this era, the U.S. dominated the automobile market worldwide. U.S. dominance in the automobile market changed after the end of World War II. The change was brought by a great development in the automobile technology of other regions such as Japan as well as other European nations such as Germany and England. These changes resulted in the flooding of the U.S automobile industry with foreign automobile companies mainly those from Germany and Japan.

Many developing regions did not have established automobile industries as they did not enough capital to fund the automobile plant while others lacked appropriate automobile technology. However, in the recent past statistics in the cotemporary world show that automobile progress in a developed nation has greatly stagnated because of decreased automobile markets. Conversely, the automobile industry in developed such as Brazil and India has indicated a considerable growth rate because of their flourishing local automobile markets (Highfill, Baki, Copus, Smith & Whineland 2004).

In the past U.S automobile industry was dominated by political as well as economical forces specifically to the northern American continent. Laws, as well as government regulations, have greatly affected the automobile industry since the 1960s. It is believed that all consumer regulations resulted from raising concerns for the safety of passengers. For example, driver visibility, as well as the braking of the car, is of paramount importance for the safety of the customer.

To Americans, the design-problems pose a major concern to them. Apart from the safety concerns, there was a need for environmental sustainability as well as the oil crisis. This was facilitated by the enacting of vehicle pollution and control actin 1965. Subsequently, Congress passed the Clean Air Act in the 1970s. This air act required a 90% reduction in the automobile emission by 2010. The extent of the U.S. automobile market and its production was founded on a long sustained self-contained industry. Nevertheless, in the recent past, the industry has recorded tremendous changes due to appropriate industry boundaries.

There has been a notable change in the internationalization of the United States of America automobile industry. One of the major changes in the changes in the global volume and pattern of automobile trade within the past 75 years. The second remarkable change is in the high increase of automobile competitors as well as the structure of global automobile markets. These changes have been brought by the changes in government policy, the evolvement of technology and changes in consumer preferences. In the past, the automobile industry in the United States of America was dominated by a proactive United States tariff and especially for US producers and high costs of transportations.

Before 1945, the United States of America had developed one of the biggest automobile industries mainly as a result of the protection of the 45% ad valorem tariff. In contrast, the European nations had established a relatively flexible tariff policy in the pre World War I period but sustained different horsepower and other relevant that coupled with transportation costs made the United States of America automobile penetration to foreign markets and mostly that of low-priced automobile impossible. In summation, the United States of America automobile industry was initially the largest automobile industry in terms of the size of the local market as well as the use of mass production.

However, with the continuous development of automobile technology in other nations, it was displaced by Japan as the leading automobile industry in the 1980s. Subsequently, in 2009 China overtook the United States of America to become the second-largest automobile industry globally. Nowadays, the United States of America automobile industry is ranked number three globally in volume.

In the year 2010, the United States Automobile produced approximately 7,761,443 automobiles. The automobile industry in the United States of America started with hundreds of manufacturers, but in the year 1920s, the industry was dominated by three players namely Ford, General Motors and Chrysler. During the early years these companies continued to perform well, but the high rise in oil prices, increase government regulations as well as high competition from other automobile manufacturers negatively affected the performance of the U.S auto companies.

Nevertheless, these companies occasionally increased their performances but in 2008 the automobile industry in the United States of America went in turmoil and General Motors and Chrysler had to be bailed from bankruptcy by the federal government. Initially, most manufacturing plants in the United States of America were domestically owned by the General Motors, Chrysler and Ford Companies but these days most automobile transplants and factories in the United States of America are owned by foreign companies and most Japanese companies.

Porter’s Five Forces Strategy Analysis as it applies to the Auto Industry

Porter’s 5 Forces Model deals with outside factors that influence the nature of competition within it. These factors include suppliers, Barriers, Substitutes, Buyers as well as Competitive Rivalry. In the past owning a car in the United States of America was considered an achievement. During this era, the Ford, General Motors as well as Chrysler companies were dominating the auto market. The automobile was associated with the rich. Nowadays, Americans do not consider owning a car as a considerable achievement.

While in the past most Americans preferred to use automobiles in their transportations, these days they opt to use the most appropriate mode of transport for their destinations. Many Americans nowadays prefer using the most convenient mode of transport in terms of economy as well as convenience. The United States of America does not have many automobile substitutes. Nevertheless, most Americans prefer to use walking as well as riding a bike for short distances. They use train transport for long distances as they consider it more economical and convenient than automobiles transport. This is common in cities such as New York and Chicago.

Conversely, in some other cities, most people prefer to use automobiles for their transportations. In automobile manufacturing, most companies outsource most of their works such that they are mainly left with the task of assembling, designing and research work. Therefore, the bargaining power of automobile suppliers is considered low because of the high number of suppliers in the United States. The high number of automobile suppliers in the auto industry makes it possible for manufacturers to easily switch their suppliers accordingly.

In the United States of America auto industry, the bargaining power of powers is considerably high. Automobile buyers form an important part of the industry revenue and the automobile industry in the U.S. has to do their best to keep their buyers happy. Failures to do so, the buyers have minimal costs to incur as switching costs. The buyers will have only to sell their car and buy another model. The rivalry among the automobile competitors in the United States of America is very strong.

The reason behind this is because of the close balance among the main competitors. Another reason why there is a strong rivalry competition in the automobile industry is the lack of differentiation among the automobile companies present in the United States of America. The buyers consider the price, durability as well as quality when making their purchase decision. Moreover, when these companies are advertising their products, they do a comparison and mainly on those areas they outperform their competitors (Lienert, 2003)

The threat of a new entry in the automobile industry in the United States of America is significantly low. The threat is low because the industry has successfully matured and has reached economies of scale. For this to happen, the automobile is to mass-produce for the automobile to be affordable to the customers. Failure to which, the products can be considerably expensive. Another main barrier to threat entry is the huge capital that is needed to manufacture automobiles and maintain automobile research and development to invent new models to address the ever-changing consumer preferences. Moreover, accessing appropriate marketing channels is another major barrier of new entry as new manufacturers have to look for dealership sell their cars or establish their expensive dealership (Harbour, 2001).


In conclusion, the development of automobiles is anticipated to have started in the 18th century in France. The first internal combustion engine was invented in Belgian and the first gasoline-powered vehicle was constructed in 185 in Gale Germany. It was Henry Ford who built the first car in 1896. He later revolutionized the automobile industry with the introduction assembly line that enabled mass production that makes it possible to sell the vehicles at affordable prices.

Reference List

Harbour, R. (2001). Small-Car profit strategies. Automotive Industries. New York Prentice Hall.

Highfill, D., Baki, M., Copus, S., Smith, J. and Whineland, M. (2004). Automotive Industry Analysis. Web.

Lienert, D. (2003). Why Toyota is Beating Ford. New York Prentice Hall.

Peterson, J. (2004). The Automobile Industry in U.S. Cambridge: Cambridge University Press.