Audrey Mounts
00855650
MGMT 485W
September 22, 2013
Strategic Mapping The automobile industry is a very large and diversified industry with many pros and cons to joining. By using Porter’s Five Forces we can better analyze whether or not becoming a part of the automobile industry is a good idea. The threat of new entrants to the automobile industry is very low due to their sources of entry barriers. Already in the industry are many well established names that carry brand loyalty to many of their consumers. With economies of scale, automobile purchases are not usually affected. People will always need vehicles no matter what the economy is doing. There are many large manufacturers already and each contains many of their own product differentiation. Toyota has cars, SUV’s, vans, and even a luxury line through Lexis, and that is just one of the many already well-established names in the industry. The capital requirements are really high. It takes a lot of capital to start and build a new name to the automobile industry. Even manufacturers that have been in the industry for a long time, such as Chrysler and GM, are realizing the struggles with maintaining the high costs of staying in the automobile industry. Switching costs are low. Because automobiles are priced competitively, if a consumer no longer likes Toyota than it is not difficult or costly to switch to a Ford automobile. Accesses to distribution channels are very easy to use. Because most automobile industries use trucks, trains, and planes to distribute their products it would not be too difficult for a new entrant to gain access to shipping companies. There are many cost disadvantages to becoming a new entrant in the automobile industry. These costs include testing, advertising, and establishing a consumer basis that many well-established names in the industry already have. The bargaining power of buyers is high in the automobile industry. It is very easy for buyers to be able to force down prices of vehicles. The most common process in purchasing a new vehicle is going to each dealership in order to get the best price. Once you find the lowest price, you then haggle with the salesman in order to push that price down just a little bit further. If enough people in the industry cause prices to be forced down than the automobile industry can be greatly affected. Bargaining for higher quality or more services in the automobile industry is also very common. After a consumer purchases a vehicle, they then bargain for the warranty and other additional services. If a dealership or brand of vehicle doesn’t offer the products the consumer is looking for, then they can easily go to another dealership of brand in order to get what they want. Threat of substitutes is very high in the automobile industry. Because switching costs are so low, consumers can easily go to another dealer, another supplier, or another brand in the industry with little to no cost to the buyer. The bargaining power of suppliers is very low in the automobile industry. Because the industry is such an important customer to the supplier, their products are not as differentiated to the industry, and the suppliers are not more concentrated than the industry it sells to, they do not have much power to control the industry. The intensity of rivalry among competitors in the automobile industry is really high. Price competition between the already well-established brands is always a predominate factor. If Toyota offers the lowest price in the industry, then the Ford will lower their prices to match. If the individuals did not lower their prices to match their competitors then they would lose many of their consumers to the lower bidder. You cannot go through very many commercial breaks without seeing at least one for Nissan’s newest vehicle or Fiat’s new line taking over. The advertising battles between the different individuals in the automobile industry are endless. The biggest and best names always have the best advertising slots in the television prime positions, on the radio, and even on the interstate. Increased customer service and warranties helped weed out the weaker brands, such as GM and Chrysler, and keep the leading brands strong. Although there are many good things about entering the automobile industry, I believe that the intense rivalry, the high threat of substitutions, and the high bargaining power of suppliers is what keeps the threat of new entrants into the industry so low. The other well-established leaders in the automobile industry will easily eliminate the new competitors trying to establish a name. Although there are endless amounts of riches than can be made in the automobile industry with a new line, I personally would not enter this market due to the high barriers.