Auto Industry
Essay Preview: Auto Industry
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Introduction
The evolution of the automotive industry has been influenced by various innovations in fuels, vehicle components, societal infrastructure, and manufacturing practices, as well as changes in markets, suppliers and business structures. Currently, the major competitors within the industry are Ford, DaimlerChrylser, General Motors GM, Honda, Toyota, and Nissan The best known early automotive manufacturing pioneer was Henry Ford, who built his first car in 1896 and founded the Ford Motor company in 1903. Ford became famous for pricing Model Ts competitively and perfecting the automotive industry assembly line production which revolutionized the automotive manufacturing industry and mainstreamed ownership in the United States. During this period there were originally 500 auto manufacturers. By 1908, there were only 200; and in 1917 only 23 remained. This vast reduction was due to large amounts of consolidation within the industry.
Going forward the global car market is full of potential. That growth is not expected to be in the US, rather in countries such as: China, India, The Pacific Rim, South Africa, and South America. Other future endeavors include low emission cars, which are expected to provide expansions in sales. Some major automakers are investing in fuel cells, devices that convert liquid hydrogen into electricity, hoping to make future vehicles more environmentally friendly. As we move forward the automobile industry will see more changes in the next 10 years than it has in the last 100.
Now we will take a look at the automotive industry through Michael Porters Five Forces Analysis model. There five different areas that influence an industry: (1) threat of substitutes; (2) barriers to entry, (3) supplier power, (4) buyer power; and (5) degree of rivalry. As we look at each of these areas we will learn what influences and drive the automotive industry in todays society.
Threat of Substitute Products
There are not many substitute products for automobiles. The most common substitutes are planes, trains, buses, walking, or riding bike. All of these different forms of transportation depend on the geographic location, availability and what the cost is resulting back to the consumer. In some cities such as New York or Chicago, a car is not as necessary. In cities such as those, the subway, bus, riding a bike or walking is the most effective means of transportation. This reduces the cost of paying for parking, not paying high gas prices and dealing with traffic within a larger city atmosphere, resulting in more free money and time on hand for the consumer. Taking the plane across the United States has even proven to be cheaper in some situations. The cost of a round trip flight From Miami, Florida to Seattle, Washington on average is about $600 (United Airlines). In this day and age you cant even drive for that amount of money. You have the cost of a hotels, gas, maintenance of the car and time to make the trip. There may also be some underlying social and cultural attitudes that keep people from owning automobiles in some parts of the world. Many nations are not as spread out or as mobile as the U.S. and individuals are constrained either by geography, race, class, or religion and the need for personal transportation is not as great. However, most individuals in todays society that has the ability and means to own a vehicle, along with living in a geographic location with the necessary means to travel (roads and fueling stations), will do so.
Barriers to Entry
The threat of new entrants to the automotive industry is fairly mild. The industry is very mature and it has successfully reached economies of scale. In order to compete in this industry a manufacture must be able to achieve economies of scale. For this to occur, manufacturers must mass-produce the automobiles so that they are affordable to the consumer. Another issue is that it takes an incredible amount of capital to manufacture the automobiles and to keep up with the research and development that is necessary for the innovation requirements. Access to distribution channels and government backing/support is another high barrier of entry to the auto industry. The product produced must meet all industry standards and test prior to it being placed in the market. Finally, a company must find a dealership to sell their automobiles or have their own dealership and if the new entrant is able to find a dealer, space would be very limited to present the automobile and the dealership would market their brands first for sale.
Supplier Power
In the relationship between the automotive industry and its suppliers, the power is favored for the industry. Some observers are saying by the year 2010 the number of suppliers will decline by some 90%. (SAP Reporting) The automotive industry is comprised of powerful buyers who are generally able to dictate their terms and conditions to their suppliers. There is couple of specific characteristics that make members of the automotive industry powerful buyers: Automotive parts and equipment (e.g., oil filters, mufflers, belts, machines to help build the cars etc.), which in 2004 was valued at $1.6 trillion worldwide.(Texas Automotive Manufacturing Industry Report), materials to build the car (steel, nuts, bolts, paint, fabric, carpet etc) and lastly the shipping and transportation which in return adds value to the product (moving the supplier cargo around local and globally). In this changing market of the automotive industry the future suppliers need to become more attentive to the buyers needs. Suppliers need to establish a good repore with their buyers, increase speed and responsiveness to the buyers needs within the changing markets, offer products at a competitive price, compete globally and produce a quality product that ensures durability and reliability. In todays society suppliers must stay on top of things because there are so many different types of suppliers locally and globally that will be more than happy to retain new customers to build their customer base.
Buyer Power
The bargaining power of the buyers is moderately high. The buyers are the consumers who purchase almost all of the industries output. The manufacturers depend on them to stay in business. The buyers also are a significant portion of the industries revenue. If they can not keep their buyers happy then they risk losing them to their competitors. Somethings that keep buyers/consumers happy today is a good quality vehicle, competitive pricing, quality sales/service and dependability. Another plus for the buyer is that they have low switching