Introduction to the Auto Industry
Industry Definition
The industrial revolution in the various parts of the world such as the United States of America led to the introduction of machines and locomotives, which enabled movement. That led to the birth of the modern-day automotive industry in the country. The automotive sector is defined as a wide variety of organizations that are involved in the manufacture and selling of motor vehicles. Summarily, the automotive industry is made up of companies, which have their primary functions as follows. One of the services is the designing of motor cars. The other purpose of organizations in the industry is to develop the motor vehicles. The automotive companies also manufacture the motor vehicle designs that they produce with time. Notably, the companies also market the motor vehicles they have manufactured. Lastly, the automotive companies seek to sell their cars to prospective buyers (Sari et al., 2015). Hence, the automotive industry is a busy sector of any country's economy and plays a significant role in stabilizing the economy of the various countries in the world such as the United States of America.
Industry Profile
The American automotive industry kicked off in the 19th century, explicitly in 1890. The mass production of the automotive and their burgeoning domestic market in the United States of America made the country the largest manufacturer and seller of the motor vehicles in the world. Similar developments in Japan outdid those of the United States of America back in the 1980s to become the best in the world. Later on, in 2008, China overtook Japan in the automotive industry to become the best in the world. In the united states of America, the largest manufacturer of the motor vehicles currently is Fiat Chrysler Automobiles US LLC(FCA US) based in auburn hills, Michigan, the united states of America, Ford Motor Company based in Dearborn, Detroit, Michigan and General Motors headquartered in Detroit, Michigan. Significantly, the state of Michigan in the United States of America has had many of the largest automotive companies in the country, boosting the Michiganian economy (SelectUSA, 2018).
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Industry Market Structure
The automotive industry in the US focuses on both the domestic and the international market. General Motors has the most significant local market share at 17.6% while the others, including the manufacturers outside the United States of America, share the rest of the market (Statista, 2017). The United States of America's automotive industry is oligopolistic. There are a number of the automotive companies in the United States of America that control the market. The companies are in constant competition to become the best in the sector with their technological developments studded with creativity. The automotive market is based on the production of the motor vehicles as the standard item. However, there could be differences in the final models. For example, Tesla, Inc. based in Palo Alto, California, united states of America has come up with electric cars that have differentiated the company's products from those of the other companies such as General Motors.
Future Outlook
The future holds a lot for the development of the automotive industry in the United States of America. For instance, the running of the motor vehicles is gradually leaping from diesel and petroleum to electricity. That has been aimed at mitigating the impacts of air pollution in the United States of America. One of the companies that have made such a move is Tesla, Inc. the year 2018 is predicted to improve the automotive industry in some ways. Primarily, the analysts of petroleum prices have stated that the costs of gas will remain low. That will be the first step in influencing the typical Americans to own cars, which will result in increased sales of the motor vehicles in the country. Nevertheless, the automotive industry in the United States of America may be faced with a decline. That is based on the historical trend in the industry, which was pioneered by the bankruptcy of General Motors, and Chrysler in 2009 (DeBord, 2018).
Porter's Five Forces Strategy Analysis as it Applies to the Auto Industry
Bargaining Power of Buyers
The power of the customers in the automotive industry is one of the forces that affect the automotive industry in the US. The customers to the automotive industry in the United States have the power to control the prices of the motor vehicles. Some of the factors that determine the bargaining power of buyers are as follows. The first one is the concentration of both sellers and buyers in the automobile market. If the buyers are more than the sellers in the market, they tend to have lower bargaining power. A small group of buyers than the sellers leads to the formers increased bargaining power and the low costs of switching manufacturing companies. The other factor is the sensitivity of the buyers concerning the prices and how well they are educated regarding the product. The more educated and price-sensitive consumers have a higher power in the bargaining in the automotive industry (Martin, 2016).
The automotive industry is different from the other sectors in the United States of America such as the groceries sector. The basis of the difference is that the grocery sector is made up of items that the Americans need for their daily uses while the automotive industry has things that the Americans need once in several months and even years. Ba.ck in the year 2009, the automotive companies were working on increasing the power of buyers in the sector in the United States of America. The players in the industry provided discounts for the consumers. The deals were targeted at getting the industry moving since it was declining. The same year marked the bankruptcy of General Motors, and consequently, the other automotive companies feared that they would lose customers and therefore they had to promote their sales to maintain their customer bases. That tremendously increased the bargaining power of the buyers in the automotive sector in the United States of America (E. Dobbs, 2014).
Nevertheless, the current economic conditions in the United States of America, such as those affecting the global market, have increased the power of the buyers. The American automotive owners are tending to keep their automobiles for more extended and being very skeptical of buying the new motor vehicles. That has been a disadvantage to some extent on the side of the automotive manufacturers since most of the motor vehicle units they have designed and manufactured are still in their showrooms with little or no buyers. Additionally, the customer preferences when it comes to automotive industry and the vehicles in the market are rapidly changing. The American market has very diverse choices in what they look for in a car ranging from official to casual needs of a vehicle, as well as the requirements for the uses of a car such as transportation or just road trips (E. Dobbs, 2014).
Bargaining Power of Suppliers
The suppliers are also components of the forces that can influence the market in a given sector. The suppliers play an integral role in the delivery of the automotive products to the target market. Notably, the suppliers may deal with one company or more than one company in the market. The suppliers of a company's commodities also affect the prices of the products. Nonetheless, the suppliers may tend to have a lower implication on the costs of the automotive compared to the manufacturers and the buyers. The following are the factors that determine the suppliers' ability to change the prices of motor vehicles in the United States of America's automotive industry. One of the factors is the number of suppliers. The fewer the suppliers, the more the power they have on the prices of the automobiles. The other factor is the cost that a company would incur in switching from supplier A to B. the higher the cost, the higher the power that the suppliers of a company have (Marsdd, 2013).
The automobile supply business in the United States of America is fragmented. This is because of the many states that the country has and the high population of people living in the US. Characteristically, the state of Michigan has the highest number of car manufacturers, including the top three American automotive giants, General Motors, FCA US, and the Ford Motor Company. Not all the suppliers can be located in the state of Michigan. The suppliers have to be spread in the other 49 states in the country to satisfy the United States of America's automotive demands. Most of the suppliers in the country work with more than one company. It is not uncommon to locate a particular supplier of the automobiles based in the state of Georgia, the United States of America, dealing in ford, Chrysler, and the General Motors products (E. Dobbs, 2014).
The fragmentation of the automotive suppliers in the United States of America has implied their power to control the prices of the automotive in the country. The fragmentation has led to a significant reduction in their ability to bargain and lead to lowering or raising the costs of the motor vehicles manufactured in the United States of America. The suppliers in the United States are therefore susceptible to two influences. One of the controls is the demand of the automobiles in the United States of America's automotive market. The other force is the directives from the automotive manufacturers in the country. That leaves the suppliers with little power to dictate the prices of the automotive products across America. Manifestly, the cost of switching from one automotive supplier to another in the United States of America is considerably lower. That is because most of the suppliers are very small (E. Dobbs, 2014).
Competitive Rivalry in the Industry
Competition is one of the most visible forces shaping the demand and supply influences to any given business. The increase in the level of technology is one of the factors that have catalyzed the level of competition in the world. Similar to any other sector of the economy, the automotive industry is characterized by competition levels increasing day by day. The other factor of competition affecting the power of a business in the market is the level of competitors in the market. If the automotive sector has a high number of competitors, the ability of the companies lowers the market, and the supplier bases are constant. If the level of competition in the market decreases, then the businesses acquire more power to gain new customers who lead to the success of their efforts in making more profits and the consequent growth of the companies. Visibly, the supplier and the buyers of a particular company have the power to seek the services of the competitors to the venture (Marsdd, 2013).
The increase of the level of competition in the automotive industry in the United States of America has led to some of the companies in the sector coming up with creative ideas in revolutionizing their manufacturing processes. Locally, Tesla, Inc., although not yet confirmed as a threat to the automotive giants in the United States of America, has come up with ways to handle the competition. Lately, Tesla, Inc. has come up with the electricity-powered car that has been widely admired in the United States of America. Unfortunately, the new automobile by the Tesla, Inc. has been rated as unaffordable to the average American. Nonetheless, Tesla, Inc. is working round the clock to make the brand of the car affordable for the American populace. Once Tesla, Inc. is done with the cost standardization, most of the automotive companies in the United States will lower their power in the market. That will be the beginning of a new era of automobile rivalry (DeBord, 2016).
FCA US, Ford Motor Company, and General Motors have been in constant competition in the United States automotive market. Hailing from the same state of Michigan, their rivalry commences at the grassroots levels. Considerably, the companies have lost their power in the automotive market, and there is the threat of other companies beating them in their own game. Significantly, the global automotive companies have for a long time sought to dominate the United States of America's automotive market. That further reduces their power in the market. The supplies of the three companies have also been switching automakers from time to time destabilizing the supply efforts of their products. The buyers of the automotive products in the United States of America have also led to a new era of rivalry among the automotive companies as they switch from one to another to suit their automobile preferences (E. Dobbs, 2014).
The Threat of New Entrants
The new entrants in an industry may come up with a reorganization of the sectoral way of doing things. The new entrants in the market usually come into the sector with new strategies that are creative enough to compete against the best companies in the industry. That lowers the power of the older businesses in the market. One of the factors that determine the retention of power by the ventures is the speed that the new entrants have in the entry and gaining the competitive strength in the market. The slower they do it, the more power and control the older businesses have in the market. The barriers to market entry also affect the new entrants to the market either positively or negatively. The more the obstacles in the market entry are, the easier it is for the existing companies in the market to have the power to control the market. That also takes place in the automobile market in the United States of America (Martin, 2016).
The barriers to entry to the automotive industry in the United States of America are some of the highest levels of deterrents in the world. The new entrants in the united states of Americas market are mostly the international automotive companies in the global market. Some of the new entrants are Toyota, Nissan, and Honda. The United States government has been vigilant on their entry into the automotive market in the company, and thus they have made the entry barriers severe for them. That is an attempt by the government to promote the domestic automotive companies. Hence, the local automotive companies retain a considerable amount of power in the automobile market. Nevertheless, the advantages of international automotive trading have increasingly been benefiting the United States of America regarding boosting the foreign trade and strengthening the United States dollar. Therefore, the government has allowed a controlled entry to the automotive market, which continues to affect the domestic automotive industries (E. Dobbs, 2014).
The entry of new players in the automotive industry from both the local and international platforms has elevated the level of competition in the automotive industry in the United States of America. The competition has sparked rivalry and the shrinkage of some of the sectors. For instance, the General Motors had collapsed in 2009 following the bankruptcy that the company was faced with in the market. That can be attributed to the rivalry starred by the new entrants thus depleting the markets for the existing companies in the automobile market. The new entrants have also come up with low-cost automobile solutions for the American citizens, which have led to the substitution in their automotive preferences. That has forced the companies in the United States of America to lower their prices and come up with new makes of the products leading them deeper into deficits and losses hence their deteriorating financial performance (E. Dobbs, 2014).
Threat of Substitutes
Consumers in a market can switch to different alternatives that fulfill their needs as much as their current products do. That reduces the power of the companies in the market and increases the buyers' power in controlling the market prices. Some of the alternatives can originate from the competitors who may not even be in the same industries as the current companies. The substitutes reduce the business capabilities of the companies that the consumers have had the preference on in the past. The substitutes are usually cheaper than the goods or services that the consumers are already consuming. Also, the substitutes may seem more convenient for the consumers than the other commodities. They also have a low cost incurred when switching to them, often to the consumers' advantage (Marsdd, 2013).
One of the substitutes for automotive products is the public transport systems, which are being developed in the United States of America. The public transport sector of the country has been working round the clock to ensure that the America populace has efficient means of transport, which are both more convenient and affordable. That has led to the shift from owning automobiles in the United States of America to boarding buses top and from work for the working class and to and from school for the students. The increasing costs of gas are also discouraging the Americans from owning extra automotive since the costs of maintaining them are slowly increasing day by day. That will lead to a shrinkage of the market segment for the automotive industry. The solutions to this would reduce the costs of gas and ownership of the automotive by the normal American populace (E. Dobbs, 2014).
The increase in the level of technology is offering a substitute to the automotive industry, for instance, the growth of the usage of the online travel apps such as Uber. Uber is a ridesharing application that the users can access via their smartphones and enables the users to have rides and get stuff like food delivered to them at a low cost. Uber Technologies Inc., headquartered in San Francisco, California in March 2009, developed the Uber application. Broadly, the use of the Uber app has provided a substitute to the typical American using their car to move for short distances or to get some errands done such as collection of food from a McDonald's joint or a package from a store such as Walmart. That has been a perfect substitute for acquiring more cars for an American household (E. Dobbs, 2014).
Conclusion
The American automotive industry has been one of the largest sectors in the country's economy. Dating back to the 19th century, the development of the automobiles is attributed to the industrial revolution and the use of machines in the United States of America. Many companies based in the state of Michigan with countrywide suppliers control the domestic automotive industry. The power of the automotive businesses has varied under various conditions such a competition and the threat of substitutes. The advancement in the level of technology has promoted the use of Uber cabs to move around the urban areas in the United States leading to the low financial performance of the automotive industry in the country.
References
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