Porter's Five Forces Analysis of the Automobile Industry
Porter's Five Forces, also known as P5F, is a way of examining the attractiveness of an industry. It does so by looking at five forces which act on that industry. These forces are determinants of that industry's profitability. The 5 forces are:
1. The threat of new entrants
In the auto manufacturing industry, this is generally a very low threat. Factors to examine for this threat include all barriers to entry such as upfront capital requirements (it costs a lot to set up a car manufacturing facility!), brand equity (a new firm may have none), legislation and government policy (think safety, EPA and emissions), ability to distribute the product (Alfa Romeo has been out of the US since the early 90s largely due to the inability to re-establish a dealer network. But if you are looking at Singapore, for example, only one dealer is needed!). 2. The bargaining power of buyers/customers
Who in the US has ever bought a car without bargaining? Anybody? In 2009 especially US dealers were giving great deals to buyers to get the industry moving. While quantity a buyer purchases is usually a good factor in determining this force, even in the automotive industry when buyers only usually purchase one car at a time, they still wield considerable power. However, this may be different in other markets. In Singapore it sure is lower than in the US, creating a more favorable situation for the industry but not the buyers. 3. The threat of substitute products
If buyers can look to the competition or other comparable products, and switch easily (they have low switching costs) there may be a high threat of this force. Product differentiation is important too. In the car industry, typically there are many cars that are similar - just look at any mid-range Toyota and you can easily find a very similar Nissan, Honda, or Mazda. However, if you are looking at amphibious cars, there may be little threat of substitute products (this...
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