Porter's Five Forces in Auto Term Paper

  • Length: 7 pages
  • Sources: 4
  • Subject: Transportation
  • Type: Term Paper
  • Paper: #87162809

Excerpt from Term Paper :

For this reason, they have stepped out to pursue alternatives, especially foreign cars. On the contrary, as consumers become price oriented, they have minimal purchasing power because they are not buyers of large volume automobiles (Porter, 1985).

3.3 Threat of New Entrants

It is extremely difficult for new entrants penetrate the auto industry because of the existing high level of brand loyalty. Nevertheless, the few popular overseas firms and entered the American auto industry easily. For example, Honda Motors entered Ohio by opening a new office. This marked the beginning of a major stiff competition in the industry. Foreign entrants have expanded leading to decreased markets for American auto companies (Rubenstein, 2011).

3.4 Bargaining Power of Buyers

In the current marketplace, consumers have been given various options, models, and brands to make their selection. However, various factors affect the buying decisions of consumers. They include price, appearance, and effect on the environment. Customers are always seeking for nice looking and new cars. For the rich, car loving segment, they have a tendency of buying the most attractive and new released models. Besides this, another important issue is the quality of cars. A good car must be efficient meaning ensured safety, running fast and saving gas. Additionally, because the industry has many competitors, consumers enjoy a wide range of options at reasonable prices with good quality. Further, due to environmental factors such as global warming, most auto manufacturers are making their cars in a unique way that ensures the environment is protected. Looking at various consumer lifestyles, people are choosing to buy cars in different ways (Beecroft, 2008).

3.5 Threat of Substitutes

Up to this point, it is evident that companies have introduced many transportation substitutes. They include trains, buses, subways, and bicycles. Evidently, these substitutes have enhanced the lifestyles of most consumers living in urban areas. On the contrary, some people living far from cities have to use cars as the only means of transport.

3.6 Competitive Rivalry in the Industry

There is high competition between existing auto companies. This stems from the existence of too mush alternatives in the marketplace. For this reason, the auto industry has likely to realize reduced profits if the high cost of competition does not change.

4. 0 Conclusion

As much as the U.S. economy is slow, the automobile sector has been consistent in providing positive results in the past years. Over time, consumer confidence has been strengthening as car manufactures replace aging brands with innovative versions of models. Newer brands comprising of fantastic features in the market have made consumers to be non-resistant in replacing their old models with new ones. Moreover, there is a strong pent up demand such that thigh taxes and prices of gas have been unable to suppress consumers. Increasing market demand, which never existed in previous years, has become the backbone of the sales in the auto industry as both businesses and households are purchasing new models of vehicles (Yates, 2010).

Customers in this industry have been motivated by the ease of getting credit at a reduced interest rate. This has encouraged them to buy new cars following impressive specifications. Though the industry has cut down discounts, they have introduced minimal financial rates and lower lease installments, which have been effective at luring buyers to enter showrooms. The enormous demand for trendy cars accompanied by declining rates of unemployment and easy credit has been the driving force of the American auto sales. Experts expect that the pace of growth will stabilize becoming moderate in the future. This follows the pre-requisite of providing products with attractive specifications and great features to maintain competition and make use of the increasing demand, precisely as the outlook of European market remains dull (Rubenstein, 2011).

References

Beecroft, D. (2008). History of the American automobile industry. Toronto: CCH Canadian Limited.

Cooney, S., & Yacobucci, B.D. (2009). U.S. automotive industry: Policy overview and recent history. New York: Nova Science Publishers.

Porter, M.E. (1979) "How competitive forces shape strategy," Harvard Business Review, March/April 1979.

Porter, M.E. (1980) "Competitive Strategy," The Free Press, New York, 1980.

Porter, M.E. (1985) "Competitive Advantage," The Free Press, New York, 1985.

Rubenstein, J.M. (2011). Making and selling cars: Innovation and change in the U.S. automotive industry. Baltimore: Johns Hopkins University Press.

Weintraub, S., & Sands, C. (2008).…

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