Analyzing the US Automotive Market Through the Lens of Porter's Five Forces (Essay Sample)

Analyzing the US Automotive Market Through the Lens of Porter's Five Forces Student Name University Course Professor Name Date Table of Content TOC \o "1-3" \h \z \u 1. Abstract PAGEREF _Toc123462282 \h 32. Introduction to the Auto Industry PAGEREF _Toc123462283 \h 42.1. Industry Definition PAGEREF _Toc123462284 \h 42.2. Industry Profile PAGEREF _Toc123462285 \h 52.3. Industry Market Structure PAGEREF _Toc123462286 \h 62.4. Future Outlook PAGEREF _Toc123462287 \h 73. Porter's Five Forces Strategy Analysis as it Applies to the Industry PAGEREF _Toc123462288 \h 73.1. Bargaining Power of Buyers PAGEREF _Toc123462289 \h 83.2. Bargaining Power of Suppliers PAGEREF _Toc123462290 \h 93.3. Competitive Rivalry in the Industry PAGEREF _Toc123462291 \h 103.4. Threat of New Entrants PAGEREF _Toc123462292 \h 113.5. Threat of Substitutes PAGEREF _Toc123462293 \h 114. Conclusion PAGEREF _Toc123462294 \h 125. References PAGEREF _Toc123462295 \h 13 1. Abstract The Automotive Industry contributes to the economic well-being of the United States. For most of its history, three companies have dominated the industry: Ford, Chrysler, and General Motors. On the other hand, the industry is losing market share domestically and internationally due to the emergence and growth of global manufacturers. The entry of Toyota and Honda has hurt the industry's dominance on the international stage and its profits. This study focuses on the Automotive Industry in the United States in the context of Porter's Five Forces Model. The automotive industry in the United States is defined, profiled, and the market structure is investigated using critical statistics from the industry's impact on the US economy. Here is an analysis, definition, and illustration of Porter's five forces as they apply to the automotive industry. Using Porter's five forces, it is simple to investigate an industry's capacity to meet customers' needs worldwide satisfactorily. 2. Introduction to the Auto Industry The formation of the Cadillac Automobile Company in 1902 marks the beginning of the long and illustrious history of the American automotive industry. Henry Ford founded and owned this company before establishing the Ford Motor Company in 1903 when it produced its first automobile (Lazdowski, 2020). There are currently over ten vehicle manufacturers in the United States, with thousands of people directly employed in manufacturing facilities. Despite this success, the auto industry in the United States experienced a financial crisis in 2009 (do Carmo et al., 2019). Ford's prospects were bleak at best, General Motors was on the verge of bankruptcy, and Chrysler had already filed for Chapter 11. If the American auto industry fails, the national economy will suffer greatly. The federal government stepped in to help GM and Chrysler, while Ford used unconventional methods to succeed. It is necessary to quantify the sector's financial health and strategic standing to assess the health of a market. Porter's five forces (P5F) analysis examines a market sector using a five-factor framework. This article will discuss the state of the American auto industry since 2009 through the lens of the P5F analysis. 2.1. Industry Definition The term US Automobile Industry refers to the conglomerate of manufacturing companies in the United States involved in the production, distribution, and retail sale of motor vehicles. General Motors, Ford, and Chrysler are regarded as the "Big Three" automakers in the United States. In 2011, the big three automakers were estimated to have sold approximately 46% of all lightweight vehicles in the United States (Grieco et al., 2021). Since 2009, when the industry nearly collapsed due to the high price of gasoline, it has been driven primarily by the production of light vehicles (do Carmo et al., 2019). The typical consumer's tastes and preferences have shifted toward vehicles with lower overall fuel consumption. The automobile industry's pre- and post-recession contributions to the US economy paint a clear picture of the industry's proper comeback. The industry contributed approximately 3.6% United States GDP in the year preceding the 2009 economic downturn but between 4% and 5% in 2011 (Grieco et al., 2021). The structure and outlook of the US automobile industry are favorable in the short term and possibly in the long term. 2.2. Industry Profile Ford, General Motors, and Chrysler have historically held the most significant share of the auto market. These three corporations have grown significantly domestically and internationally and have merged with or acquired several smaller competitors in their industry. Toyota, Honda, Nissan, and Hyundai-Kyai are among the most formidable competitors in this sector. The automotive industry in the United States generates approximately $280 billion in annual revenue (Hughes-Cromwick & Coronado, 2019). In 2012, General Motors had a 20% market share, Ford had a 15% market share, and Chrysler had a 12% market share (do Carmo et al., 2019). The automotive industry, a key driving sector, greatly propels the US economy. It has strong ties to various other industries and plays a vital role in propelling the US economy. The United States is home to thirteen different automakers, resulting in a combined annual output of more than eight million vehicles. The automotive industry in the United States, including car dealerships, accounts for 3.5% of the country's overall gross domestic product (Piromalis & Kantaros, 2022). The automotive industry accounts for more than 4% of total manufacturing in the United States, with over 3.6 million people employed in the industry as a whole (Henry, 2022). These figures include job openings at car dealerships and replacement part manufacturers. 2.3. Industry Market Structure The structure of the automobile market in the United States is described as an oligopoly in which a small number of players control the vast majority of market shares. There are signs of the monopolistic competition despite the industry's oligopoly market structure. The auto industry should be more competitive along brand lines, reduce transaction costs, and cultivate long-term customer loyalty to maintain its market dominance. The future of the automobile industry in the United States appears to be one of growth in the short term; however, as the US market matures, this industry should look for growth opportunities outside of the United States to grow in the long run term. The three primary players in the US automotive industry are looking for emerging markets to enter to secure their long-term viability. Ford is expanding its presence in Asia, a massive market with many potential customers. The application of Porter's Five Forces Strategy Analysis allows for an additional assessment of the economic and strategic position of the US automotive industry. Volkswagen opened a new manufacturing facility in the United States in 2011, bringing the country's total manufacturing facilities to 13 (Grieco et al., 2021). In addition to maintaining prices lower than what customers are willing to pay, every manufacturing company compares its prices to those of its competitors. The organizational framework of the sector is simple enough. Currently, manufacturers get 82% of their parts from their respective suppliers (Piromalis & Kantaros, 2022). By doing so, they can keep their prices low by shifting the cost of research and development onto the supplier. Even though many supplies are purchased from third parties, many manufacturers also operate their factories to produce engines and transmissions. The automotive industry requires a significant amount of human labor. The cost of labor for employees is the most expensive expense in the automotive industry, followed by the cost of materials and advertising. 2.4. Future Outlook Expanding the sector's marketing efforts overseas is the industry's future strategy and is expected to increase demand. The industry will be able to reduce its logistics and transportation costs with the assistance of manufacturing expansion into other countries. The industry will have access to skilled laborers at a more manageable cost. Analysts revised their projections for US auto sales in 2022 to 13.7 million vehicles, down from 15 million in 2021 to nearly 20% from 17.1 million in pre-COVID 2019 (Henry, 2022). In addition, for the industry to continue to be competitive, the industry intends to adopt new technologies that will assist in the process of production and manufacturing. Automated methods, which will allow the industry to reduce the amount of money spent on labor domestically or internationally when producing vehicles, are another tactic the industry employs. 3. Porter's Five Forces Strategy Analysis as it Applies to the Industry Examining how an industry reacts to the five different types of competition it faces is one way to define an industry's structure and evaluate its strategic position. It is best to apply Porter's model to an entire industry, which Porter defines as a group of companies selling similar goods and services. The attractiveness of a particular industry can be evaluated, as well as its potential for future profitability, with the help of Porter's Five Forces Model. This model considers not only the bargaining position of buyers and suppliers but also competition among existing competitors within the industry, the threat of new entrants, and substitutes. The ability of a sector to turn a profit, on the other hand, is undeniably impacted by the bargaining position of consumers operating within that sector. 3.1. Bargaining Power of Buyers The ability of buyers to negotiate a lower price on a product or service is what is meant by the "bargaining power of buyers" Consumer disposable income varies by economic segment. Since most automobiles are standardized, buyers have some negotiating power in the automotive industry. Part of the reason for standa...