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Porter's Five Force Analysis: The Auto Industry

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Identify each auto industry structure correctly. provide an analysis of market structure requirements including number of firms, uniformity of products, ease of entry and exit and include sources as well please.

Porter's Five Forces Strategy Analysis as it applies to the Auto Industry:
- Bargaining Power of Buyers
- Bargaining Power of Suppliers
- Competitive Rivalry in the Industry
- Threat of New Entrants
- Threat of Substitutes

In addition to identifying all five forces provide the detail for relating them to the requirement of market structure. Clearly identify an appropriate application of each concept identified in the scenario, for each concept identified, define at least one future opportunity.

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Automobile industry is responsible for designing, developing, manufacturing, marketing, and selling the motor vehicle in the marketplace that contributes in generating revenue for the country. In US automobile industry, various evolution has been introduced that are influenced by various innovations in fuels, vehicle components, societal infrastructure, manufacturing practices, as well as changes in markets, suppliers and business structures (Center for Automotive Research, 2010).

This development in engine was also the result of discovering of the new energy carrying mediums, new fuels such as, steam in the 1700s, gas and gasoline in 1800s etc. US automobile industry contributes about 20-25% of the world vehicle production. In produces light trucks, minivans and utility vehicles that is quite competitive (Murray, Mayes & Hoffman, 1999). As a part of the innovation, environmental regulations have contributed in the industry. It is because strict environmental regulations and high fuel prices forced the industry to develop low emission vehicle technology.

Automobile Industry

Industry refers to the group of companies that are related or associated with each other in terms of primary business activities. Group of firms that are operating in the automobile business is collectively called automobile industry (Bradley, et. al, 2005). Automobile products are extremely complex and technological sophisticated that are commonly used by the customers. Automakers within the automobile industry produce cars to maintain balance between productivity and efficiency with quality and innovation (Center for Automotive Research, 2010).

Industry Profile

Significant developments that are occurred in the industry with the passes of time are included in the industry profile. Along with this, industry profile also highlights the key trends and issues within the industry (Bradley, et. al, 2005). US automobile industry has shaped to the identity of US economy as it generates millions of job. From the past few years, domestic automotive assembly firms such as GM, Ford and Chrysler have lost their market share with the international firms those entered in the US market such as Toyota, Honda and Hyundai (Murray, Mayes & Hoffman, 1999).
At the end of 2008, output of auto sector was 2% of GDP and overall manufacturing contributed 11.5% of GDP in US. ...

Solution Summary

A Porter Five Force Analysis is provided for The Auto Industry.

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Porter's Five Forces Model

In 2009 the American auto industry is in a dire economic state. Chrysler is in Chapter 11, GM is on the brink of bankruptcy, and Ford's future is at best uncertain. The demise of the U.S. auto industry will have a devastating impact on our national economy and specifically the economies of Michigan and Ohio.

Economists occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. According to Porter, his model should be used at the industry level, defined as a marketplace in which similar or closely related products or services are marketed. This research paper requires the application of Porter's Five Forces Model to the auto industry.

Porter's analytical framework consists of those forces that affect a producer's ability to serve its customers and make a profit. A change in any of these five forces requires a re-assessment of the marketplace. The five forces include:

1) The threat of substitute products: The existence of close substitute products (i.e., high elasticity of demand) increases the propensity of customers to switch to alternatives in response to price increases.

2) The threat of the entry of new competitors: Unless there are significant barriers to entry, profitable markets that yield high returns will attract firms (i.e., perfect competition), effectively decreasing profitability.

3) The intensity of competitive rivalry: As in the case of oligopoly markets, rivals may choose to compete aggressively, non-aggressively or in non-price dimensions.

4) The bargaining power of customers: The ability of customers to put the firm under pressure due to availability of existing substitute products, buyer price sensitivity, uniqueness of the products, etc.

5) The bargaining power of suppliers: The cost of factors of production (e.g. labor, raw materials, components, and services such as expertise) provided by suppliers can have a significant impact on a company's profitability. As such suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

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