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Porters Six Forces Automobile Industry Essay

2380 words - 10 pages

Porter's 6 Forces: An Automobile Manufacturing Industry Analysis


Course: Global Strategy and Policy "MAN 4720-004"

Submission: 2/10/2015



Major: Business Management and Administration "Leadership."

Power of Buyers- Medium/high
Buyer's these days have so many choices when it comes to the automobile industry. Factors of buyer power include: quality (safety ratings), level of environmental impact from emissions (sustainability efforts of the company: gas efficiency, hybrid electric/gas cars), price, customer specific willingness to pay, physical appearance, family needs, social status impact, and if new or used. Every individual has ...view middle of the document...

A manufacturer still has the authority to set the bottom price they are willing to accept; and because buyers have alternatives they set the top price they are prepared to pay. What's left is the price range with medium flexibility determined by a buyer's set of needs and how well the manufacturer meets those needs. Lastly, the availability of websites like Craigslist and Auto-Trader, and places like Carmax give buyers the power to find the best prices and remove the need to haggle with a dealership.

Power of Suppliers- Low
The automobile manufacturing industry is considered an oligopoly, that means that there are only a few big players to which the vast amount of auto suppliers have to try to sell their product. Many times, small firms have only one large client that supports the entire business; so they have almost no say, or everyone could be out of a job. If a manufacturer isn't satisfied with a supplier's product cost, delivery time, or quality, they have many other providers at their disposal. However, the vendor market size has been consolidating for several reasons including the fact that major manufacturers have set a limit to the amount of suppliers they deal. "The number of US automotive suppliers, currently counted in the thousands, has been steadily shrinking. Globalization and reduced volume from traditional US automakers are contributing factors, as are high material and labor costs, which have hurt the financial condition of domestic automotive suppliers" (Levy). A provider must be capable of being flexible on price demands, cost control, and product requirements or they will be out of business in a nanosecond because manufacturers have insignificant switching costs and cheaper foreign alternatives. Dealerships, a different type of supplier, relies heavily on manufacturers to provide them with inventory to sell.
Another factor is that cars these days are lasting longer and longer as well as the parts used to make them. This longevity can hurt suppliers because cars don't need replacement parts as quickly, like when the industry switched to using stainless steel instead of rolled steel. Unions have some power because the bigger they are, the more effect they have on the operations of a large firm. The big players can always find someone who will do the work for the price they want. Materials are also very accessible so if an important player couldn't get what they needed at a price they are willing to pay, they could ultimately set up and outsource their facilities. Suppliers also do not have the power to integrate forwards due to capital demands and because suppliers specialize only in certain parts of the overall vehicle build.

Threat of New Entrants- Low/Medium
With the current economic struggles of the average American, more and more people are looking for economical transportation. Globalization has a profound effect on domestic automobile markets because society is becoming aware worldwide...

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