Porter’s Five Forces of automobile industry.
Globalization had indeed left its impact on the automobile industry. Now foreign auto dealers were facing lesser restrictions to operate in overseas markets. Michael E. Porter in his book “Techniques for analyzing industries and competitors” dealt with five competitive forces that shaped all industries. This helped to analyze the intensity of competition which had an impact on the profitability of an industry.
The US automobile industry was considered as a force to reckon with from the days of craft production and hence would serve as a standard use case to identify Porter’s five forces. With low level of entry barriers, the Big was facing increasing competition from foreign players like Toyota and Honda. The relationship among Porter’s five forces in the US automobile industry, detailed below clearly proved its’ competitive nature.
1. Threat of New Entrants – The existing loyalty to major brands, incentives for using a particular buyer, higher fixed costs, scarcity of resources, high costs of switching companies, and government regulations constituted the barriers to entry which in turn reduced the competition in an industry. The success of foreign car manufacturers like the Honda Motor Co. had disproved the general belief that the Big Three were invincible. The only factors expected to retard the growing significance of foreign auto dealers were the loyalty to American made vehicles and the after-sale services offered. 2. Power of Suppliers – The presence of very few suppliers of a particular product, and the absence of any substitutes for the product supplied reflected the pressure exerted by the supplier. Sometimes the product was extremely important to the auto-maker and the alternatives proved to be very costly. In such cases the suppliers were in a better position to dictate terms. A lot of suppliers depended on automakers to buy their products. But if the automaker...