Porter’s Five Forces Analysis
Michael Porter identified five forces that influence an industry. These forces are: (1) degree of rivalry; (2) threat of substitutes; (3) barriers to entry; (4) buyer power; and (5) supplier power. For more on this framework proposed by Porter, please see Appendix C. Like other industries operating under free market, capitalistic systems, viewing the automotive industry through the lens of Porter’s Five Forces can be helpful in understanding the forces at play. Degree of Rivalry
Despite the high concentration ratios seen in the U.S. market, which typically signify that a lesser degree of competition is seen in the industry, rivalry in the U.S. and the global automotive industry is intense. Clearly, the concentration ratios do not tell the whole story. The automotive industry in the U.S. is no longer the playground of the Big 3 (GM, Ford, and Daimler Chrysler); global companies compete in the U.S. market, while U.S. companies have globalized themselves. In the 1980s, the Japanese car makers Honda and Toyota entered a fairly disciplined U.S. market and have been very focused in growing their shares of the market. The great diversity of rivals in terms of cultures and associated philosophies has intensified rivalry in the industry. Market growth is slow in the established markets of the U.S. and Western Europe, and companies must fight fiercely to eke out gains or prevent losses in market share. However, growth is potentially huge in the rapidly industrializing nations of China and India; in these booming markets, companies could take advantage of the opportunities to reap handsome rewards. The degree of rivalry in the automotive industry is further heightened by high fixed costs associated with manufacturing cars and trucks and the low switching costs for consumers when buying different makes and models. Threat of Substitutes
The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation...
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