American Automotive Industry
American Automotive Industry
The auto industry has seen tremendous growth since the 20th century. Vehicles have moved from suing steam power to using gasoline. Other than these changes, the industry has witnessed various economical changes that have shaped the industry to what it has become today. This paper reviews the auto industry with a review at what the industry entails, its profiles structure and future outlook. The paper will also review the porter five models and its application in the auto industry. The paper will review how each of the five forces affects the industry. The industry’s strengths and weaknesses will be reviewed in the papers. Forces such as risk of threats are non existence in the industry, whereas forces such as a threat of substitutes are real. The paper concludes by emphasizing of product quality so as to attract and maintain customers.
Introduction to the Auto Industry
In the recent past, the American automotive industry has undergone tremendous changes and today it is recognized among the largest industry in the world. Currently the main competition comes from nations such as Japan and China that lead in automotive manufacture. This growth is attributed to the increased domestic markets and the country reliance on mass production. America developed its first automobile in late 19th century. The automobiles relied on internal combustion engines, battery-powered engines and steam engines so as to run. Electric cars were also common in the large cities as the users would easily find locations to charge their batteries.Steam engines were also common though least preferred due to the long starting time when it was cold e.g. during winter. From 1911, gasoline powered auto mobiles became common as the popularity for steam and electric automobiles died down. Renowned icons in the automotive industry such as Henry Ford are recognized for engaging in mass production of vehicles in the 20th century (Canis, & Yacobucci, 2010).
Other iconic names such as General Motors and Chrysler come to mind when discussing the automobile manufacturers. These names turned US into a mobile nation with the availability of cars. The automotive industry in America has, however, been faced with numerous challenges, most recent being the economic crisis, 20008.The economic crunch in 2008 tremendously affected the automotive industry with automotive giants such as general motors and Chrysler filing for bankruptcy. Reorganization strategies and bail out efforts saw the auto industry emerge from the economic crunch. Today, the industry is growing, and most estimates predict a total sale of more that 14 million vehicles by the end of the year 2012. The automotive industry is gradually becoming printable as manufacturers and suppliers continue to realize profits of significant margins (Collie, & Kakkar, (2012).
Industry Definition
Currently, there are approximately over 200million vehicles in America automobile industry. This has created a highly mobile nation with the movement of goods and services with ease. The American automobile industry has provided the American society with power driven vehicles such as passenger cars, farm equipment and commercial vehicles.The American automobile industry manufactures vehicles for the high end and low end consumers hence ensuring that it has a wider consumer market. This has enabled individuals to commute with ease. Initially, there were three main automakers in America Ford, General Motors and Chrysler. However, the economic crunch saw Chrysler and Daimler Benz get into a merger of equals which ended up swallowing Chrysler. In the end, the automobile industry was left with three main automakers: Ford and General Motors. The automotive industry is still growing, and the presence of international players such as Honda, Toyota and BMW cannot be ignored (Collie, & Kakkar, 2012). Such international players have acquired a substantial market share that matches and sometimes surpasses the players of the American automobile industry.
Industry Profile
Players involved in the automobile industry manufacture vehicles for personal and public use. Ford, General Motors, Nissan, and Toyota are among the prominent players in the automobile industry. Globally, the automobile industry realizes revenues of approximately $2trillion with leading car manufacturers such as US, China, Japan, Germany and Brazil. In American, the automobile industry is steered by approximately 200 companies. The companies realize revenues of over $200 billion. The key drivers of the US automobile industry are employment and interest rates. The automobile industry is a source of employment to close to half a million workers. This is possible as the industry engages in the manufacture, supply and logistics activities. In all the areas involved in manufacturing of automobiles, workforce is mandatory.
The manufacturing of vehicles is done through the centralization of different plants located across the nation. The process of manufacturing and assembling a vehicle requires that manufacturers acquire different parts from different suppliers (Ahlstrom, & Bruton, 2009). It is the working together of the different parties involved in the manufacture and assembly of vehicles that result to an elaborate automobile industry in American. US based automakers may be successful, but they face competition from foreign auto manufactures. Foreign auto manufacturers such as Toyota and Honda have established assembly points across the US.
Industry Structure
The automotive industry structure involves several key players; General Motors, Ford, Toyota, Honda and Nissan. These key players accounted for the highest numbers of vehicles sold in US. The US automobile manufacturers also relied on non US markets so as to acquire additional revenues. American car manufacturers, for instance, rely on non-US markets such as Canada to make additional sales. Currently, Canada is the largest importer of automobiles from North America. Prior to the economic crunch the American automobile industry was dominated by the three main automotive manufacturers. The three players created an oligopolistic market where they controlled the automotive industry (Canis, & Yacobucci, 2010).The oligopolistic approach meant that the actions and decision of one company profoundly affected the decision that the other firm would take. Ford, GM, and Chrysler-Daimler engage in homogenous commodities i.e. vehicles and focus on maximizing on profits. The oligopolistic approach of the automotive industry also leads to an equal pricing of commodities and sales across the companies. For instance, if one company decides to lower the cost of luxury vehicles, the other two companies may decide to lower their prices to match that of their competitors or they can choose to wait for the competitors offer to end.
Future Outlook
The future outlook of the automotive industry is bright. Having recovered from 2008 economic crisis, sales and revenues are on the rise. In the financial year ended 2011, for instance, automotive manufacturers such as Ford realized sales profits of close to 15% (Bloomberg business week 2012). Revenues for the companies also saw an improvement withy $18 billion realized in the third quarter of 2011. General Motors, on the other hand, realized an increase in sales profits of close to 8% for the third quarter of 2011 financial year (Bloomberg business week 2012).
Chrysler-Daimler profits also rose by over 20% by the end of 2011. The increased growth is due to improved economy and successful recovery efforts after the economic crunch. The country’s economic stability affects the financial performance of the prominent three automotive manufacturers in America. An improved economy means increased employment in the industry. An improved economy also leads to increased sales as the consumers bargaining power increases. The American automotive industry is bound to witness significant growth opportunities as it expands to other continents such as Asia and Europe (Collie, & Kakkar, 2012). The American automobile companies need to work towards attaining international and regional standards the markets it expects to enter.
Porter’s Five Forces Strategy Analysis as it applies to the Auto Industry
Porter’s 5 is a process that entails examination of the attractiveness of an industry. The process is known as Porters five as it involves an examination of five main forces.
Bargaining Power of Buyers
In America, the automotive consumers access various automobiles products from a few sellers. The main commodity in the automobile industry is the vehicle. The manufactures are bound to provide consumers a selection of vehicles to suit their needs (Porter, 2008). Manufactures focus on luxury vehicles for the high-end consumers and the average vehicle for the average buyer. The need to tap many buyers has seen the car industry change and embrace innovations. The stiff competition leaves the buyer with advantage of choice. The buyer has a wide array of vehicles to consider for purchase. With a wide range of products for consideration, the manufacturers have no alternative, but to attempt to attract the customers further.Strategies such as car sales, incentives, and discounts are common in the automobile industry. The competition for customers from the automobile manufacturers gives consumers the bargaining power. Automobile manufacturers that desire to remain successful have no alternative, but to strive to offer better deals to the consumers. They also have no alternative, but to improve the quality of their vehicles. In the end, it is the customer who benefits.
Bargaining Power of Suppliers
The supplier is an essential part of the manufacturing chain in the automotive industry. The bargaining power of the supplier thus refers to the benefits that supply enjoy when suppliers are few hence making products and materials few from the buyers (Ahlstrom, & Bruton, 2009). A supplier can also enjoy bargaining power if his products are unique hence buyers cannot get a substitute. Bargaining power of the suppliers also occurs when the buyer considers that a shift to another supplier may be costly. In US automotive industry, the suppliers rely in the car manufacturers so as to make sales. The occurrence of the economic crisis had a negative impact on the supplier as they lost their bargaining power.The major players in the automobile industry such as GM were experiencing tough financial strains. This means a reduction of manufacturing operations. Unfortunately, this move had a negative impact on the suppliers too. The suppliers engaged in massive layoffs and downsizing strategies so as to remain operations. Strained economic times forced suppliers to consider substitutes and alternative resources to ensures automotive manufacturers do not halt. The suppliers and manufacturers in the automotive industry are closely linked, and a negative effect on one affects the other.
Competitive Rivalry in the Industry
Every industry has many players who engage in a healthy competition over customers. The automobile industry is not different as it remains competitive. Vehicle manufacturing giants such as Ford and GM are faced with competition from international and foreign vehicle manufacturers. Increased competition means that the giant manufacturers will have to share the customers in the market. Customer’s needs are gradually changing, and it is the responsibility of the vehicle manufacturing firms to adapt to change. Currently, the generation Y is the force to look out for in the automobile industry. These are young consumers who are smart, savvy and already know what they want (Canis, & Yacobucci, 2010). This generation is gradually joining the workforce and determining the vehicles they desire. Increasing competition in the automobile industry sees car manufacturers manufacture vehicles to meet the needs of this group. US automobile players such as Ford and GM have to satisfy the needs of customers by improving and enhancing their products.
Threat of New Entrants
The auto industry in US faces minimal threats of new entrants. Starting an automobile manufacturing firm is costly and requires large amounts of financial investments. This hinders the entry of new manufacturers into the markets. Historically, the existing automobiles such as Ford have been in existence for decades and with time they have grown to becoming leading automobile manufacturers. The tremendous growth and success of existing companies makes it almost impossible for new entrants to match up to the game. Another factor that inhibit new entrant into the industry is brand loyalty. Existing manufacturers have already cut a niche for themselves amongst customers. The extent of brand loyalty will thus inhibit a new entrant as there is no guarantee of attracting sufficient customers to sustain the new manufacturing company (Porter, 2008).
Threat of Substitutes
Currently, the customer in the automobile industry enjoys a wide array of choice. The customer has the choice of choosing one vehicle over another. The customer also has the choice of substitution one commodity over another (Porter, 2008). The threat of substitutes is thus real in the automotive industry as increased competition leads to the manufacture of vehicles that appeal to consumers. With the production of anew range of vehicle, the customers are given the alternative of selecting another model of vehicles better than the previous option. This gives customers the option of shifting from one model to another depending on preferences of customers. The step towards minimizing the threat of substitution lies in the ability of the players in the automotive industry to embrace innovation and establish new products that suit the consumer’s demands.
Conclusion
America’s auto industry has come from far. Having began in early 20th century. The industry has overcome obstacles, most recent being the economic crisis that threatened the industry. With the assistance of the government, manufacturers such as GM recovered and have regained their position in the auto manufacturing industry. The manufacturer has not only witnessed and increases in sales and revenues but has also created job opportunities. However, it is an indicator that players in the auto industry need to establish long term strategic plans that will secure their future. It is vital that the players in the auto industry consider the porters five analysis to establish the way forward in the increasingly competitive world. Traditional players, in the US auto industry, have seen an increase in foreign and international players. It is vital that these players embrace innovation and strive to meet the varying needs of consumers. It is innovations that will ascertain that the companies do not risk substitution of their commodities. Embracing high quality products guarantees that customers remain loyal to the manufacturers. Customers look out for manufacturers that offer high quality products at the lowest cost possible. This is the only way that players in the auto industry will survive.
R eference
Ahlstrom, D. & Bruton, G. (2009). International management: strategy and culture in the emerging world. Cengage learning
Porter, (2008). The five forces that shape strategy. Harvard business review
Bloomberg business week (2012). General Motors: New York. Retrieved on 27th Nov. from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=GM
Bloomberg business week (2012). Ford Motor Co. Retrieved on 27th Nov. from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=GM
Collie, B, Kakkar, A. (2012). Optimism returns to the American automotive industry. Retrieved from http://www.strategy-business.com/article/00115?gko=531e5
Canis, B. & Yacobucci, B. (2010). The US motor vehicle industry: confronting a new dynamic in the global economy. Congressional research service
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