Porter's 5 Forces and the Us Auto Industry

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Research Project #2: Porter’s Five Forces Applied to the US Auto Industry

Ty Webb

State University

ECON 600

Dr. Frederic

(2.) Abstract
This report focuses on the identification, analysis, and application of Porter’s Forces to the United States automobile industry. The report focuses on the application of Porter’s Five Forces to the industry as a whole, and is broken down into the individual applications of each force. Sources used in the production of this report are drawn from many disciplines and range from encyclopedia-based data, government reports, widely published periodicals, to industry opinions. The goal of the report is to give the reader a clear concise understanding of the US auto industry and a general picture of how Porter’s Five Forces are a relevant comparison tool for each aspect of the industry.

(3.) Introduction to the US Auto Industry
(3.1) Industry Defined
The definition of the United States automobile industry is defined by its history and its evolution from the late 19th century to modern times. The industry dates back to the late 1890’s when early pioneers like Ransom Olds and Henry Ford engineered and refined automobile production and evolved the way people traveled. Through the wide spread and growing use of mass production, assembly line techniques and parts innovations, the eagerly thriving US auto industry grew rapidly. By 1920, the industry had three major firms to emerge as leaders in the industry. These three firms were Ford, General Motors, and Chrysler. Henry Ford’s company was the first firm to use assembly line methods to mass produce automobiles for widespread delivery. Mr. Ford also was a pioneer in the consumer lending area that allowed hard working American families to borrow money to help purchase their vehicles. Ransom Olds became a pioneer in the early parts development as he made mass produced auto parts that were interchangeable and thus allowing people to more easily repair their autos (“Industry History”, 2007).

A more modern definition if the US auto industry is found to have the old reliable firms, combined with a growing foreign segment. The stark contrast between pre and post World War II industries is a polar opposite and so is the make up of both markets. Production of the vast majority of autos assembled and produced in the US prior to World War II was confined to the three major companies: GM, Ford, and Chrysler. However, smaller independent domestic companies such as Hudson, Studebaker, and Nash thrived in niche markets with particular vehicles. Through the 1960’s to present times is when the domestic market changed altogether. The introduction of the Japanese companies Toyota and Honda changed the market forever and introduced new players into the market that have made profound impacts (“Industry History”, 2007). (3.2) Industry Profile

The current domestic automobile profile has both similar characteristics to the pre and post World War II industries. The similar characteristics center around the fact that the “Big Three” are still the three main American firms producing and selling automobiles. The market also shows the diversity of the post World War II market due to the fact that eleven foreign auto firms have assembly plants in the US and produce thousands of autos annually. The current domestic market vastly expands upon the original domestic producers, and even so much, as to allow these foreign producers to have growingly important market shares. To illustrate these assertions in a more concrete manner, the Wall Street Journal’s Markets Data Center produces results that might shock the average consumer (“Markets Data Center”, 2011).

According to data published in the Wall Street Journal as of May 2010, 10 of the top 20 cars ranked in order of total sales were produced by foreign firms. In other words, 50% percent of recent auto by popularity are made by non-American firms. To illustrate this point further, foreign firms made up two...
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