Five Forces Model: U.S. Automobile Industry

Topics: Automotive industry, Automobile, Porter five forces analysis Pages: 2 (698 words) Published: January 27, 2012
Michael Porter’s Five Forces Model is a model used to analyze a particular environment of an industry. An industry is a group of firms that market products which are close substitutes for each other, such as the automobile industry. According to Porter, there are five forces that determine an industry’s long-run profitability and attractiveness. These five competitive forces are the threat of entry of new competitors, or new entrants; the threat of substitutes; the bargaining power of buyers; the bargaining power of suppliers, and the degree of rivalry between existing competitors.

In the auto manufacturing industry, the threat of new entrants is generally very low. For this threat, factors to examine include all barriers to entry such as upfront capital requirements since it costs a lot to set up a car manufacturing facility. They also need to look at brand equity since a new firm may have none. Also, legislation and government policy are considered and this includes safety, EPA, and emissions. Finally, they’ll look at the ability to distribute the product. The emergence of foreign competitors with the capital, management skills, and required technologies began to undermine the market share of North American companies.

The bargaining power of suppliers must be examined. Historically, the bargaining power of automakers went unchallenged. The American consumer, however, became undeceived with many of the products being offered by some auto companies and began looking for alternatives, particularly foreign cars. On the other hand, while consumers can be very price sensitive, they do not hold much buying power since they never purchase a large volume of cars.

If buyers can look at the competition or other comparable products, and switch easily, there may be a high threat competitive rivalry. The switching cost is high with new cars because you can't sell a brand new car for the same price you paid for it. You also need to look at public transportation and the...

Cited: CarFreaks. Porter 's Five Forces Analysis of the Automobile Industry. 24 January 2010. 13 October 2011 <>.
Hitt, Michael A., Duane Ireland and Robert E. Hoskisson. Strategic Management: Competitiveness and Globalization: Concepts, Ninth Edition. Mason: South-Western Cengage Learning, 2011.
Investopedia. The Industry Handbook: Automobiles. 2011. 13 October 2011 <>.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on Porter's Five Forces On Automobile Industry
  • Five Force Model on Diamond Industry Essay
  • Porter Five Forces Model Essay
  • Porters Five Force Model Essay
  • Essay on Porter's Five Forces Model
  • Porters Five Forces Model Essay
  • Essay about Five Forces Model
  • Five Forces Model Essay

Become a StudyMode Member

Sign Up - It's Free