Porter's Five Forces Analysis Of Automobile Industry

Porter's Five Forces Analysis of Automobile Industry

The car industry takes an important place(square) in the industry of several big industrial nations. Main world producers by group areToyota (Toyota, Lexus et Daihatsu with a global production of 7 923 069 car in 2007);General Motors (Chevrolet, Opel, etc.) : 6 259 520; Volkswagen AG (Volkswagen, Audi, etc.) : 5 964 004 ;Alliance Renault-Nissan (Renault, Nissan, etc.) : 4 926 857; Ford Motor Company (Ford, Mazda, etc.) : 4 731 286 ; Honda (Honda et Acura) : 3 868 546; Hyundai Kia Automotive Group (Hyundai et Kia) : 3 578 374; PSA (Peugeot et Citroën) : 3 024 863; Suzuki : 2 284 139; Fiat Group (Fiat, Lancia, etc.) : 1 990 715. We would like to make an analysis of the competitive environment of the company to know in which the market evolves to deploy competitive strategies. Michael Porter developed it and stipulates that; to perform, an industry has to face, influence ant resist the competitive environment pressure. Indeed the main objective of an industry is to gain competitive advantage in order to generate profit. That’s while I used the Five forces model by porter wich will concern five strengths of competitiveness : Industry competitors that’s means the rivalry among existing firms, the threat of new entrants, the bargaining power of buyers , suppliers and the threat of substitute products or services.

The five forces are:

The threat of new entrants:

it is defined by the size of barrier to the industry entry and the attractiveness of the profit margin. In fact industries deal with a large number of obstacles threatening new entry. The following points describe the main barriers at the entry of the coffee manufacturing industry:

- Economies of scale: “they are the extra cost savings that occur when higher volume production allows unit costs to be reduced” ( R. Lynch, Corporate strategy, 2006, fourth Edition). In the type of industry studied, they are determining elements, which mean that new entrants have to achieve economies of scale to compete and reach the same price as the leader companies.

- New entries require important capital investment in machines, marketing, distribution, communication, technology… Costs of production remain high (independent of the economies of scale) for new entrants. They have to invest in infrastructures, specialists’ expertise and suppliers (machines, electricity...etc.). Launching a car brand is very expensive.

- The power of a brand : A newcomer cannot take the advantage of a brand

- Distribution requirements :You need a powerful distribution system to sell your car around the country or the globe

- And according to the government policy, there is lots of legislation concerning the motor industry (Think safety, EPA and emissions)

New entry does not represent a real threat for the industry studied. Indeed, it is difficult for new entrants because the leader brands have a monopoly in this market and are covering the whole sector.

The threat of the competitive rivalry

Most countries are in a huge competition, the only way they can fight in the competition on the price and on advertissing. They fight to have the main advantage on technologies improvements. Margins are low and pressure between rivals is high.

There is an intense rivalry between all the cars manufacturers (US, Japan, Italy, France, the UK, Germany, China, India, …)

Proton, a State-owned car manufacturer in Malaysia, have less rivalry but is still under pressure because of the imports from other countries

The threat of subtitutes products

If buyers can look to the competition or other comparable products, and switch easily (they have low switching costs) there is a high threat

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