Automotive Industry And Porter 's Five Forces

Porter’s Five Forces is a framework that consists of five competitive forces, threat of entry, power of supplier and buyer, threat of substitution and competitive rivalry. These forces facilitate the analysis of the task environment of an industry or company (Wheelen and Hunger, 2009).

Porter has identified five (5) competitive forces that shape every industry and every market. The forces determine the intensity of competition and hence the profitability and attractiveness of an industry. Based on the information derived from this analysis, management can decide how to influence or to exploit particular characteristics of this industry.

The automobile industry is a capital intensive industry, the players in the industry need high capital expenditure in order to maintain their market position, but the expected returns in the future is quite high. The industry analysis can be carried out under the following heads:

Porter's Five Forces is a simple but powerful tool that consist of 5 different forces to understand the competitiveness of your business environment, and for identifying your strategy's potential profitability. The five forces are degree of rivalry, threat of entry, threat of substitutions, buyer power, and supplier power. Each force is helpful in their own way to get to know your rivals a lot better and get to know what can happen in your market.

Given the current economic climate, I think the automotive industry is going to be faced with a multitude of economic challenges in the next five years. As an oligopoly market, the auto industry is highly dependent on strategic decision-making, and the demand for dynamic innovation and supply at decreased-cost levels. Competition, possibilities of turning substitutes into compliments, and shifts toward higher demand in services are seemingly leading factors that face the current automotive industry in the immediate future. But first, we should not ignore the political forces at play within the market.

Michael Eugene Porter is an economist, author, advisor and a researcher. He is the creator of Porter Five Forces theory, which is a framework for a business. The model “identifies and analyzes five competitive forces that shape every industry, and helps determine an industry 's weaknesses and strengths” (Investopedia LLC, 2016). The five forces are competitive rivalry, bargaining power of buyers, bargaining power of suppliers, threat of new entry, and threat of substitution. This is a very important theory which a business can strengthen their position.

The success of the automotive parts manufacturing industry is, at its core, derived from the health of the automotive industry as a whole. Conveniently, the

The American automotive industry began in the 1890’s. It evolved into the largest industry in the world as a result of the size of its domestic market and mass production.the American auto industry began with hundreds of manufacturers, but by the end of the 1920’s it was dominated by three large companies, General Motors, ford and Chrysler. By the end of the Great Depression and world war 2 these companies prospered making the U.S the country which provided three quarters of the worlds vehicle . They however did not remain number one, Japan overtook the market in the 1980s and China in 2008., making the U.S second in the world. The impact of the global market caused the American auto industry to suffer considerably. Japan and China were producing more vehicles at cheaper prices. Labor cost were cheaper therefore companies took their factories to these countries. In 2008 the American auto industry was on the brink of collapse . Access to credit for loans decreased and sales plunged by 40 percent. Chrysler and GM both sort

The American Auto Industry has grown ever since it 's upgraded in the early 1900s. “Although the design for the modern car was produced in Germany and France in the late 1800s, Americans controlled the industry in the first half of the twentieth century. Henry Ford innovated mass production systems that enhanced model, with Ford, General Motors and Chrysler beginning as "the Big Three auto firms by the 1920s ,(Foner - Garrity 1991)" But this manufacturing has continually been one of the best manufacturing for environmental concerns and risks around the world, particularly in the United States. Many of the concerns in this industry include; global race, modern technology for controlling the product, the impacts of emission on the environment and the government’s answer, as well as customer sentiments about the outcome.

Porter’s Five Competitive Forces Analysis is a framework developed by Michael E. Porter of Harvard Business School for study of industry analysis by analyzing five competitive forces which define industry and its business strategy. These five competitive forces determine the competitive advantages, disadvantages and attractiveness or profitability of industry.

Industry definition: "Companies in this industry manufacture cars and automobile chassis. These operations, which are referred to as automakers, typically produce cars, including electric cars, in assembly plants. The manufacture of light trucks (e.g. vans, pickups and SUVs), heavy trucks and motorcycles is excluded from this industry." [2]

The Porter Five forces analysis is a structure for business management developed by Michael Porter in 1979. It uses concepts developed in Industrial Organization economics to derive five forces that determine the attractiveness of a market. Porter referred to these forces as the microenvironment, to contrast it with the more general term microenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. This concept involves a relationship between competitors within an industry, potential competitors, suppliers, buyers and alternative solutions to the problem being addressed. A change in any of the forces normally requires a company to re-assess the marketplace.

The United States Automotive industry has been dominated by five major auto manufacturers: GM, Toyota, Ford, Chrysler, and Honda. As globalization increases the domestic automotive market (GM, Ford, Chrysler) suffers from foreign competitors. Although with high entrance barriers the market suffers little to none from new entries. There are several reasons for this the largest being capital. It takes a lot of capital to obtain manufacturing plants, raw materials, as well as to hire and train employees. PASTEL Analysis

The Porter`s five forces are threats of new entrants, the bargaining power of buyers ,product substitution and intensity of rival of rival among competitors .These forces measure the competitiveness of the market and also helps the company to identify strategies to use to penetrate such and gain market share.

Porter’s 5 Forces analysis is a commonly used business theory that identifies the 5 competitive forces of an industry. By identifying and analysing these forces you can determine an industries weaknesses and strengths. Porter recognised the 5 forces in most business markets to be internal rivalry, entry, substitutes and compliments, supplier power and buyer power.