INDUSTRY REVIEW AND ANALYSIS
Executive Summary3
Bargaining Power of Suppliers4
Bargaining Power of Buyers 5
Threats of Substitutions5
Threat to New Entrants5
Economic Factors 7
Captains of Industry 9
References11
Executive Summary
The automotive industry produces cars and trucks in the world with the giants of GM, Chrysler and General Motors and Ford being the leaders. Historically, it has been the largest and the most successful of all industries. All of the auto makers have built the most famous and classic family and luxury cars in the world. The vehicles offer affordable options for family vehicles and for first car while the luxury market creates a great opportunity to display a sense of class. In other words, the industry offers a car for every purse and reason.
The traditional auto manufacturers faced a severe recession in the 2008-2010 periods and are now beginning a claw back to normalcy. They were hit very hard during the recession but not to the extent that General Motors was as GM had to declare bankruptcy and receive a government influx of funds to meet payroll and other necessary expenses. Ford chose the investor route and is now experiencing the positive financial rewards of increased sales and production.
Ford did receive some help from the government and without serious consequences used the funds to solidify the brand. Ford has come through the downsizing that was necessary to control operations and reduce costs. Currently, the auto makers are in an expansion process and are increasing operations globally as will be discussed in the paper.
Porter's 5 Forces Analysis
Porter's 5 Forces Analysis provides an important framework in which to consider the various pressures that the auto maker relates to the market today. An example, the car industry experiences strong pressure from competitive rivalry in the market vertical. Each of the major car firms compete for the finite market share. There are constant new entrants to the market which increases the competition already in the market.
Presently, each automotive manufacturer provides a vehicle line up at different price points to provide consumers with options conducive to their requirements. The automotive industry has strong pressures in the market as the customers have a huge influence on the price and sales data. The market share of each contributor is intense and customer conversion from one company to another is strong. Customers always leverage the power of the purse. Since customers can purchase from any company, including foreign competitors, they control the future of the company in producing the vehicles that they desire. Customers are leveraged about the sellers' quality of products, services, atmospheres and prices. Moderate pressures on the industry from new companies, such as Tesla, and other digitally enhanced vehicles force the Ford Motor Company to flood the market with comparable digitally enhanced vehicles.
These new entrants to the market, as well as, the established motor vehicle manufacturing are fraught with governmental regulations that each manufacturer must adhere to. These regulations and tax laws make it difficult for many members to enter the market. These market forces impede the growth of the industry. However, existing manufactures in foreign countries may consider strategic alliances with domestic firms which in turn facilitate a more competitive advantage. An example of this would be the Fiat entering the North American market and merging with Chrysler.
Travel by automobile face moderate pressures of substitute products as public transportation increases in large cities. The use of public transportations is an important attribute to the local economy while impeding the need for individual cars. The prospective buyers will choose the public transportation for reasons of the environment and costs. However the advances in the ecology hurt the auto dealers as prospective sales are lost. There is little that the auto manufacturers can do in this area other than to produce environmentally friendly vehicles. Supplier bargaining power is relatively weak as industry members have greater bargaining power than their suppliers. Many suppliers firms compete for large contracts and may include bulk pricing in purchase arrangements.
i. Competitive Rivalry- Strong
Competition in the auto manufacturing industry is high and is always reacting to high consumer demands. Competitors in the market use different strategies to increase customer traffic and raise brand awareness. Ford utilizes a strategy to increase brand differentiation and expand their market reach by incorporating more environmentally friendly cars .
The new cars to market find a difficult customer market awaiting them. There are many regulations that the new cars that are imposed in the newest autos that are produces by Ford. The new communications and digitally run autos encounter significant first to the market competition. Each competitor adds existing brand reputation to their current offerings so the competition remains active and strategically increases in the digital arena.
Competition from producers of substitute products as public transportation poses the threat of not needing cars in urban locations. The suburban areas are not in a precarious position as in the United States they have not had the advances in public transportation. Consumers are then subject to the availability in the local area. The competitive landscape of the major automotive companies puts the GM Company in the lead in the United States. Several new entrants to the market comprise about 25% of the landscape but in the US the market share is basically comprised of the Big Three: Ford, GM and Chrysler
Bargaining Power of Suppliers
As far as the suppliers in the auto manufacturing industry there is a weak force to the Ford Company. In many of the supply chain providers, Ford has a pretty good relationship with the suppliers. In an instance where Ford had a problem they simply bought the supplier. The Penski company was a distribution company for Ford parts etc. which Ford bought when there were problems with the service .
The issue of sustainability is important for the supply chain and the auto makers especially. The environment is an asset that all must share and the auto manufacturers must look for reliable and safe raw materials. The supply chain producers are conditioned on the purchase of the auto manufacturers to be viable. Therefore the onerous of a constant supply is as much a problem in the industry as it is in the supply chain.
Bargaining Power of Buyers
The customer buying power is a strong force in the sales of cars totally depends on the customer. The number of buyers in the industry controls the amount of sales. Customers exercise the leverage over the Ford Company s there are so many options in cars available to the consumer. The customers hold the purse strings as they control the seller’s decisions on quality, service, atmosphere and prices.
Porter’s Five Forces analysis gives an important overview of the pressures of the automotive industry. The automotive industry experiences strong competition from other auto manufacturers globally. The rivalry exerts a strong pressure on each manufacturer to compete from their share of the market. The vehicles receive a strong line up from the respective companies as are needed for the customers to choose the options that they require. The customer drives this competition because of their strong bargaining power. Customers are then leveraged by the supplier’s availability to the major auto companies. The products, services, atmosphere and prices are all part of the forces that infringe on the buying power that the consumer holds for the auto manufacturers.
The largest untapped market for autos is in Iran. Iran’s population of 79.5 million is underserved and untapped market globally Customers in Iran and in other areas globally often suffer economic sanctions under various governments.
Economic Factors
In addition to the Porter Five Forces analysis, the automotive industry is stronghold in the nation’s economy and as such is a driving force in the manufacturing sector. It exists as long as the industry responds to the needs of the consumers and offers to them a product that is acceptable to purchase. It has existed since the invention of the wheel when in early times the need for man to move products and people is a basic human desire. The Ford Automotive group was founded in 1903 by Henry Ford and the other auto manufacturers cane shortly after. With globalization the marketing of the auto shifted operations to include most if not all of the world.
Automobiles are ingrained in the culture and lifestyle of Americans and the lives of other countries. Many people measure their success in life by the type of car that they drive. A strong brand perception created a significant value in the automotive industry. The price consumers expect to pay for vehicles vary as much as $4000 for the vehicle that matches their lifestyle. Consumers are sophisticated in their understanding of the products and features. They are willing to pay for the desired vehicle.
In order to capitalize on the present market upswing, strategic processes are in place to advance the position of the Big Three, GM, Ford and Chrysler. This strategic grouping represents the commonly known industry members when comparing the variables of market share and the models in 2014. In 2014, the vehicles offered by the respective companies GM offers the consumers the most number of vehicles models. The increased number of vehicles is problematic in manufacturing and inventory control. Subaru offers 7 different brands while Honda contains a small percentage of market shares.
A decrease in fuel prices adversely affects the number of cars being sold. A new process was initiated by GM to rejuvenate the company within. The process is based on a sense respond learn approach. This process involves getting the product to market.
The role of research and development in the auto manufacturers are highly influential divisions in proceeding for innovation. This is important in supporting and developing new projects. Digital introductions into the market have placed a new development stream. The use of online data to augment onboard technology needs additional development to onboard technology. Some auto manufacturers are even toying with mobile technology as a springboard to the vehicles . The ability to provide an affordable vehicle that the average family can use is always of primary research and development. The safety and affordability of the vehicle is of utmost importance.
Captain of Industry
As a captain of the automotive industry, in the 21st century, there is much work to be done and to insure that the future consumer will continue to purchase the vehicles. The consumer can offer suggestions as to what they would want to purchase in the future. As the captain of the industry, I would make assurances to the public that the industry will adhere to strict environmental and sustainable efforts in the supply chain and in the manufacturing programs.
A captain of industry
Conclusion
The automotive industry is a leader in the economic sectors of many countries. With that leadership role comes the responsibility to many sectors of the economy. The government as one sector depends on the taxes from the sales and employment taxes to support the industry and to recapture the millions that have been lent to the industry to get them over the recession in 2008. The government depends at a level of about 69% of the economic dollars being tied to the automotive industry and as such maintains the constant role of overseer of the industry.
Opportunities exist in the automotive industry in many of the countries that are developing such as Iran and India. These two countries had not previously been a large purchaser of cars and now with the ability of the manufacturers to solicit the customers in these countries there is a rather large opportunity to open up these markets.
Opportunity in the future exists in the area of the environmental responsibility as a consumer. Since the auto makers have an ability to provide for a sustainable supply chain in a viable and environmentally safe manner. In the past not as much care was taken in the environment as could have been. Also increased research and development efforts have led to new products that are not pollutants as the older models of cars had been.
Cars are available to the consumer in every shape and size from small coupes to large custom luxury models. The consumer truly holds the power of the purse in which ones they would like to purchase. As the industry uses many different models of production, the consumer is the end goal. There is a little brand loyalty of the consumer but the cost to switch is little. There are many varies and price ranges and in the past the consumer had a tendency to be loyal to a certain brand. Today however, there are many factors that the consumer considers in addition to the brand to make a decision.
Marketing and social media do play a role in the buying habits of the modern consumer. The major companies use social media to gain market share by having consumer post video and reviews on the blogs or any social media. Since the auto makers spend millions each year on social media their presence is well searchable and acknowledged by most avid media outlets.
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