Porter’s Five Forces (Industry Analysis)
Bargaining Power of Suppliers:
The automobile supply companies have limited bargaining power. There are so many supply firms and there are so many parts that are required to produce an automobile, requiring numerous suppliers, one would think that the automakers would be at the supplier’s mercy. However, the suppliers really have very little power. The suppliers tend to rely on one or two automakers to purchase the majority of their products. If the automaker decides to change suppliers, the effects to the supplier would be devastating. With the JIT (Just in Time) manufacturing methodology Honda utilizes, there is a push-pull mechanism. This warrants a strong relationship between manufacturer and suppliers. This also can be quite profitable for both organizations.
Bargaining Power of Buyers:
The automotive industry is highly competitive, therefore buyers have some degree of control, as there are many automobiles from which to chose. Consumers have the greatest power in the relationship in the fairly standardized nature of the automotive commodity and the low switching costs associated with selecting from competing brands. Honda has a history of delivering high quality and fuel efficient vehicles. With the increase in fuel cost and the state of the economy, the consumers are seeking the best product for a good price. Honda has been a leader in producing fuel efficient and low emissions vehicles. As the world has a greater awareness of the need to protect the environment and to go green, Honda continues to improve the vehicles produced with this focus. In 1977 and 1983 the Honda Civic model ranked first in U.S. fuel-economy tests. Honda has introduced hybrid vehicles such as Insight, Civic, and Accord. In 2006, the Honda Insight was listed as the most fuel efficient car. These are just some of the examples of how Honda works to meet the demands of the consumers. In the past history of automotive sales, the automakers really went unchallenged, especially in the United States. They did tend to have more bargaining power. Consumers became more and more disenchanted with the vehicles that were produced. This is when the foreign automobile sales increased and Honda was a large part of that.
Threat of new entrants:
In the automotive industry barriers to entry are habitually high due to the capital costs required in automated manufacturing, design, location, materials costs, marketing expenses, and so many other factors that are too numerous to document. Although the threat of entry of new manufacturers is low, in the 1980s the United States car manufacturers were faced with numerous new entries when the consumers were extremely frustrated with the automobiles that were produced at the time. This is one of the reasons Honda became such a competitor in the American market. As the worldwide fuel sources continue to be depleted, the need for new technology and new or different energy sources is more than evident. This will allow for new entrants in the near future. Honda will need to continue to be a leader in the market for meeting these demands. Another factor to consider is with the challenges facing America and the current state of the economy. Numerous American automotive manufacturers are filing bankruptcy, closing their manufacturing plants, and essentially going under. This could be another opportunity for new entries in the automaker industry.
Threat of Substitutes:
The threat for of substitutes to the automotive industry as a whole is relatively mild. There are numerous forms of transportation, however none as convenient or valued as owning a vehicle. The use of other forms of transportation such as trains, buses, or bicycles is an option and even saves the owner cost such as gas, insurance, taxes. However, this does not pose a huge risk of being a substitute. Consumers enjoy the ease of owning an automobile for things such as...
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