Essay About Automobile Industry And Automobile Manufacturers

Competition in the Auto Industry
Essay Preview: Competition in the Auto Industry
Report this essay
Competition in the Auto Industry
Theme II
GBA 300
Professor Laura Wolff
Autos Team #3
Rachel Richardson
October 20, 2005
Introduction
As a staff member in a major consulting firm, I have noticed several
issues affecting competition in the automobile industry. The major
competitors of the industry, as well as their market shares, have greatly
affected the increased amount of competition in this industry. These
competitors include General Motors, Toyota, Ford, Honda, Nissan, Hyundai,
and Daimler/Chrysler. An oligopoly form of competition has taken place
in the automobile industry; several forms of competition have also
taken position, including price competition, product differentiation and
price discrimination. Several issues have also affected the
competition in the automobile industry. The move for automobile manufacturers to
more fuel-efficient, or hybrid vehicles and the promise of new markets
are two issues I will address regarding competition in the auto
industry. Research for these competitive issues can be found in areas such as
The Wall Street Journal, EBSCO and ProQuest. As each issue is !
addressed, we can take a closer look at how competition has
significantly affected the automobile industry in the present, as well as the
years to come. A brief description of the market, forms of competition
and current issues are summarized below. Competition changes because
these factors have greatly influenced the automobile industry.
Description of Market
Helping firms stay up to date with new product features and
innovations, competition exists in every industry. How each firm reacts to
competitiveness in their industry is closely related to the market share of
each industry. Several of the major competitors include GM, Ford,
Toyota, Volkswagen, Honda and Hyundai in the automobile industry. GM
accounts for 25% of the total US market share, while Toyota is the
leader, with 14.7% of the market share. Ford comes in next with 13.6% of
the total market share, followed by Honda, with 11.2% of the share. A
more thorough description of all major market shares can be found in the
Appendix, in Figure 1. Japanese auto manufacturers, including Toyota,
Honda and Nissan, account for 39.3% of the total market share here in
the U.S, while all other foreign manufacturers can only account for
15.9%. However, U.S. auto manufacturers account for 44.8% of the total
market share (Bossong-Martinez, 5). In a recent survey, Toyota was r!
ated the best in overall buyer satisfaction, while Honda was the
overall winner altogether; General Motors was rated as the number one U.S.
automaker (Lenniman, 1).
New customers and competitors are present everywhere in the auto
industry. With a small number of firms and few large sellers, competition
becomes aggressive in this industry as manufacturers compete by reacting
to each other?s price and quantity changes. Each automobile
manufacturer is selling similar, branded autos, but the industry still struggles
to predict the reaction their rival firms (Miller, 620). Barriers to
entry, including government regulations, pricing, customer loyalty and
research and development, have allowed this industry to become overly
competitive; legal barriers, patents and control over supplies are all
factors that present barriers to entry in the auto industry. The
concentration in the auto industry depends solely on the percentage of total
sales by the leaders of the industry. As shown in Figure 2, the leaders
in annual sales are GM, Toyota, Ford and Honda (Bossong-Martinez).
These manufacturers account for over half of the sales in the U.S. m!
arket, with a high concentration ratio of 51%. With this description
of the automobile market, we can see how few large firms gain the most
market share by aggressive competition.
Forms of Competition
Competition in an oligopolistic industry affects the consumer as well
as the manufacturer and their competitors. Price competition greatly
affects the auto industry; each major industry knows how the others will
set their prices and in reaction to this, set their own prices and
quantities. They collaborate in order to charge competing prices and raise
profits (Bossong-Martinez, 603. However, by offering