External Industry Analysis in the Automotive Industry

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External industry analysis

a. competitive rivalry
a. profitability of the industry
Ford profit margins by quarter

GM Profit margins by quarter (declared bankruptcy in 2009)

Tesla Profit margins by quarter

b. how relevant is price competition in the market
Competitive Rivalry. Highly competitive industries generally earn low returns because the cost of competition is high. The auto industry is considered to be an oligopoly, which helps to minimize the effects of price-based competition. The automakers understand that price-based competition does not necessarily lead to increases in the size of the marketplace; historically they have tried to avoid price-based competition, but more recently the competition has intensified - rebates, preferred financing and long-term warranties have helped to lure in customers, but they also put pressure on the profit margins for vehicle sales.

Read more: http://www.investopedia.com/features/industryhandbook/automobile.asp#ixzz2BNSDQ2RQ

c. how aware are firms of each other
b. The top-level personnel moves highlight the growing confrontation between Ford and GM, as automakers claw their way back from the lows of the financial crisis. More than ever, America's two top domestic automakers find themselves fighting each other in vital markets around the globe, from California to Calcutta. GM ranks number one in U.S. sales, with Ford behind it. Globally, GM competes with Toyota and Volkswagen for the top spot. Ford is in the top six. - http://management.fortune.cnn.com/2012/07/31/ford-gm/

d. how interdependent are firms in this industry
c. Mutual interdependence means that firms realize the effects of their actions on rivals and the reactions such actions are likely to elicit. For instance, a mutually interdependent firm realizes that its price drops are more likely to be matched by rivals than its price increases. This implies that an oligopolist, especially in the case of a homogeneous oligopoly, will try to maintain current prices, since price changes in either direction can be harmful, or at least nonbeneficial. Consequently, there is a kink in the demand curve because there are asymmetric responses to a firm's price increases and to its price decreases; that is, rivals match price falls but not price increases. This leads to "sticky prices," such that prices in an oligopoly turn out to be more stable than those in monopoly or in competition; that is, they do not change every time costs change. - http://www.bookrags.com/research/oligopoly-ebf-02/

e. is there evidence of partnership/ alliances?
d. The United States Council for Automotive Research LLC (USCAR) was founded in 1992. It is made up of Ford, GM, and Chrysler. Its goal is to further strengthen the technology base of the U.S. auto industry through cooperative research and development. Its main focus is to: e. Create, support and direct U.S. cooperative research and development to advance automotive technologies. f. Be responsive to the needs of our environment and society and include the appropriate public and private stakeholders.

Ford will partner with General Motors to work on a new transmission technology. The new 9- and 10-speed gearbox will try to provide better fuel economy and a smoother driving experience.

Many analysts were taken aback by the partnership between the long-time rivals. It is really more just a sign of the times. Many automakers have been teaming up lately in hopes of slashing research and development costs while creating new manufacturing efficiencies. - http://blog.bluespringsfordparts.com/63/ford-gm-transmission-partnership/ f. How global is the competition?

They're cutting costs by focusing on innovation, global platforms 82% of automotive CEOs say they’ve implemented a cost-reduction initiative over the past 12 months, and 69% plan to cut costs further in the next 12 months. That doesn’t always mean cutting heads: 72%...
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