Porters Five Forces Model To American Automotive Industry

Every company or organization is aimed at increasing profitability levels in the process with their operations. Proper strategies to offer the organizations competitive advantages in the rivals during operation are incredibly critical. This can't be attained in lack of well structured management process of the daily activities of such companies. Within this analysis, Michael Porter offers an attractive framework to provide directions to allow businesses to survive on the market place amid competition. Business enterprises need to handle threats from substitute products in order to secure a considerable market base. Similarly, companies need to consider that possibilities of entry to the particular market by other competitors are inevitable. Strategic planning is vital to permit such organizations tackle the intensity of rivalry from competitors. Business organizations must consider providing affordable prices of their products to tackle the bargaining powers of their clients. Devising proper strategies in dealing with the suppliers bargaining powers is also very essential, in order to enable the company enhance their profitability levels (Yacobucci & Cooney, 2006).


Generally, evolution of the automotive industry has experienced various influences from diversified innovations running a business structures, societal infrastructure, fuels, manufacturing practices, suppliers, market changes and vehicle components. According to historians, automobiles industry emerged from development of engines which resulted from discovery of new mediums to carry energy. Such mediums included steam, new fuels including gasoline and gas during he 1800s. Establishment of the original automotive companies and development of first motor vehicles in the us and Europe occurred in 1876. Other technology developments came in the 1890s and 1900s such as floor-mounted accelerator and steering wheel (Yacobucci & Cooney, 2006). Consequently, these developments speeded-up the automotive industry development thus making vehicles simpler to use.

Industry definition

The American Automotive Industry can be an industry that designs, manufactures, develops sells and market automobiles, target diverse national markets (Yacobucci & Cooney, 2006). In fiscal 2008, the industry produced about 70million vehicles which were inclusive of commercial vehicles and cars. In 2008, 79. 9 million automobiles which were new continued sale. Similarly, in the same period, the American Automotive Industry went through pricing pressure from costs of materials and from changes in customers buying habits. Currently, the industry is also encountering increased external competition from the sector of public transport as clients re-evaluate personal private vehicle usage.

Industry profile

The American Auto Industrial profile involves the commercial size and growth plus the American Automotive industry consolidation. The profile also involves the perceived rise in the international investment by the industry in addition to the rapid growth of the big three leading production of the light trucks (Yacobucci & Cooney, 2006). Inclusive in the profile is employment shifts among companies, changes among States within the automotive employment procedures. Additionally, there have been labor relations organizations divergence and the health/pension care issues.

Industry structure

The industry has greater than a million Americans as employees in the manufacturing motor vehicles, parts and equipments. There have been tremendous changes in the structures since the largest or the Big Three auto corporations inclusive of General Motors, Ford and Chrysler created an overwhelming majority of motor vehicles plus light trucks to be on sale in the US market. By 2003, majority of personal cars bought from US market were either made by foreigners within North American organizations or imported (Yacobucci & Cooney, 2006). Apparently, the best Three have been mainly dominant in producing light trucks hence they are acquiring stiff competition from foreign brands. 600000US employees have been shed-off by the best Three while about 300000 have employment with foreign owned companies.

Analysis of the Five Forces of Michael Porters

Buyers bargaining powers

Establishment of strong relationship between buyers and the American Automotive Industry is very critical. Individuals are the key people that make the business to run. Basically, in this relationship between your industry and the ultimate consumers, the whole power axis should be tipped specifically to the favor of consumers. Consumers wield more power in this type of relationship due to the relatively standardized automotive commodity nature, as well as the frequent switching of costs related to selecting a product from the industry's competing brands. Nevertheless, the industry will remain marginally powerful because of the large consumer base in relation to the producer ratio (Porter, 1985).

Suppliers bargaining powers

In the relationship between suppliers and the industry, more power is bestowed substantially to the industry favor. Generally, the automotive industry involves powerful buyers who hold high capabilities in dictating individual conditions towards their suppliers. Automotive buyers will be considered powerful because of the absence of grand proliferation of companies' essentially manufacturing automotives. The main greatest automotive companies within US hold approximately 90%of value shipments plus the value added in US. Secondly, the professional powers will derive from the automotive parts that happen to be basically standardized commodities and they are mainly used in automobiles. Similarly, capacity to the auto industry buyers will emanate from backward integration occurrences (Schwab et al, 2004).

Competitive rivalry in the industry

Despite the observation of high concentration ratios within the united states market which signify decreased competition level in the auto industry, rivalry in the global automotive industry and the US niche is extreme. THE UNITED STATES automotive industry happens to be not the playground of the largest three automotive a companies inclusive of General Motors, Ford or the Daimler Chrysler. Apparently, global auto motive companies are being observed competing in america Market while at exactly the same time US companies are receiving globalized (Porter, 1985). For example, in 1980s Japanese car manufacturers Toyota and Honda entered a comparatively disciplined US market. These companies have been very devoted in increasing their market share. Presently, great diversity of the rival firms on the basis of associated philosophies and cultures has increased the rivalry intensity in the Automobile industry. Market growth has been slowed down within the established US markets and this requires companies to fiercely fight to secure considerable gains or possibly avert likely market share losses.

New entrants' threats

Barriers to entry to the automotive industry have been substantial. New company requires high capital which makes establishment of the manufacturing capacity to be able to attain minimum efficient scale very prohibitive. In addition, automotive manufacturing unit is relatively specialized and any failure cannever be easily revived. However, though new companies entry barriers are substantial, major established companies remain venturing into new markets by application of strategic partnerships (Schwab et al, 2004). Additionally, entry is also being achieved through merging with other companies or buying out others. Actually, presently entry barriers to new markets have been quite low. For instance, in 1980s, companies in the US practically welcomed Japanese makers to the united states Markets after realizing the existing firms had didn't provide quality vehicles within cheap markets. Moreover, large automotive companies are apparently globalized plus they have entered the foreign markets with diversified levels of successes.

Threats from substitutes

Substitute threats to American Auto Industry have been fairly mild. Many other types of transportation are readily available but do not require provide convenience, utility value or independence availed by automobiles (Schwab et al, 2004). Switching costs linked to having a different transportation mode such as train can be on top of the basis of personal time consumed. However, monetarily, the use of train as a mode fro transportation will be quite less expensive when compared with fuel prices consumed on same trips, auto insurance, parking and maintenance. In global urban with high population densities, substitutes can include mass transit, bicycles, walking which are cheaper set alongside the automobiles. For this reason, alternative transportation modes will be preferred. Similarly, social or cultural attitudes may keep people from owning automobiles within some parts of the entire world. Other limitations or constraints to owning automobiles may involve an individual's class, religion, geography or race factors.


The American Auto Industry has been observed to encounter various challenges within the Automobile Industry. Porter's analysis has provided an insight into understanding on strategic approaches viable tackling such challenges. To be able to remain competitive the firm must address the issue of new entrants into both potential as well as existing American market niche. Nevertheless, the firm must marshal enough resources and similarly device effective ways of fight the existence of substitutes on the market. Furthermore, the industry must address the suppliers and buyers bargaining powers whilst revisiting the problem on competitive rivalry from the Auto Industry opponents venturing into the US automobile industry market. By addressing the current issues as evidenced under the Michael Porters evaluations, the industry will be efficient in the management of the daily operations. Eventually, the industry will secure a more substantial market and clientele base that will facilitate high profitability levels, consequently improving on the perceived industrial performance levels (Porter, 1985).

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