Thomson (2003) explains that the manufacturing of motor vehicles is a global game. Thomson (2003) argues that Australia does not really have domestic businesses that manufacture motor vehicles as the three major car makers (GM Holden, Ford and Toyota) are all subsidiaries of foreign companies. However, this is not the case, GM Holden for example produces many cars a year in Australia for Australian consumers as well as engines for export.
The Ibis report (retrieved 1 August 2010) shows that the motor vehicle manufacturing industry in Australia is a $11.8 billion industry where 19,025 are employed. The industry is said to grow annually by 3.1% with just over 100 businesses working under the motor vehicle manufacturing banner. The industry in Australia exports $3 billion to overseas customers and manufacturing plants, this number is only said to expand because of globalization factors such as international trade.
Porters Five Forces Model
Porters Five Forces – Extended
1.Threat of new entrants
According to Wright (2008) the motor vehicle industry is volatile in Australia as there is an ever present threat of other international and domestic car companies entering the market, however form a standpoint of a totally new company entering the market this would be extremely hard. Wright (2008) explains that there is very high barriers of entry including; •High fixed costs
•Excessive number of participants within the industry
•Small size of domestic market
•Competition with some of the largest multinationals
As the passenger motor vehicle production has dropped over the years, seen through the -3.6% decline, (comparable to last year) the results have suggested that new entrants are simply from overseas manufacturers because; as Thomson (2003) puts it economies of production variation are lower overseas.
2.Bargaining power of buyers – ability to place the firm under pressure Ruthven (2004) notes that end consumers are very important to the survival of the industry, moreover economic down-turns and other uncontrollable environmental events can affect the decisions of expenditure for households, including motor vehicle purchasing. Within Australia the reduction of interest rates attempt to boost spending. Rather Ruthven (2004) suggests that Australians are more concerned about job losses, thus more movement in interest rates and income will determine whether or not spending on big purchase decisions such as motor vehicles will be made. Wright (2008) also notes that consumer sentiment will rise once again in 2010.
3.Bargaining power of suppliers
The bargaining power of suppliers relates directly to the market of inputs in the case of motor vehicle manufacturing the suppliers of raw materials. Key external drivers
•World exchange rates
oWhen the Australian dollar rises to much this means that imported cars and car parts are cheaper to run and buy within Australia •Price of crude oil
oThe price of oil affects the types of cars consumers buy, with an ever increasing oil price consumers turn towards alternative energy vehicles, LPG or hybrid engines •Import taxes
oIncreased prices for imported motors could be detrimental to Australian made cars with foreign parts.
•Domestic goods prices
oThere are cost pressures on manufactures of motor vehicles as the price of crude goods (metals) increase, these costs eventually get past on to end consumers
4.Threat of substitutes
Imports are considered a high and ever increasing opportunity for Australian car substitutes, with the rise of the Australian dollar and increasing fuel prices, imports are becoming ever more popular. Currently Australia buys $16.9 billion worth of imports with 45% of these from manufacturers in Japan. Furthermore with the increase in fuel prices LPG and hybrid vehicles will substitute normal petroleum...