U.S. AUTOMOTIVE INDUSTRY

U.S. Automotive Industry

U.S. Automotive Industry

Introduction

There is continuing interest in the study of the forces that impact on an automobile company, particularly those that can be harnessed to provide competitive advantage. The ideas and models which emerged during the period from 1979 to the mid-1980s (Sharp, 2006, 12) were based on the idea that competitive advantage came from the ability to earn a return on investment that was better than the average for the automobile industry sector.

Porter Five Analysis and U.S. Automotive Industry

As Porter's 5 Forces analysis deals with factors outside an automobile industry that influence the nature of competition within it, the forces inside the automobile industry (microenvironment) that influence the way in which firms compete, and so the automobile industry's likely profitability is conducted in Porter's five forces model. A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. Porter (1980a) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. Porter suggested that the intensity of competition is determined by the relative strengths of these forces. (Sharp, 2006, 12)

Main Aspects of Porter's Five Forces Analysis

The original competitive forces model, as proposed by Porter, identified five forces which would impact on an automobile company's behaviour in a competitive market. These include the following:

• The rivalry between existing sellers in the market.

• The power exerted by the customers in the market.

• The impact of the suppliers on the sellers.

• The potential threat of new sellers entering the market.

• The threat of substitute products becoming available in the market.

Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies to be successful in their market (Sharp, 2006, 12).



Force 1: The Degree of Rivalry

The intensity of rivalry, which is the most obvious of the five forces in an automobile industry, helps determine the extent to which the value created by an automobile industry will be dissipated through head-to-head competition. The most valuable contribution of Porter's “five forces” framework in this issue may be its suggestion that rivalry, while important, is only one of several forces that determine automobile industry attractiveness. (Sharp, 2006, 12)

• This force is located at the centre of the diagram;

• Is most likely to be high in those industries where there is a threat of substitute products; and existing power of suppliers and buyers in the market.



Force 2: The Threat of Entry

Both potential and existing competitors influence average automobile industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an automobile industry ...