Abstract
Improvement of profitability levels is any organization’s major goal in their day-to-day activities. It is critical, therefore, to lay proper strategies to an organization so that it can as well compete effectively with the competitors during its operations. Well structured processes of management in the daily activities of companies aid this. Directions that aid business enterprises to survive competition in the marketplace is clear from the Porter’s framework. Business enterprises ought to secure a market base and it should be a considerable one. Thus, too use this, they need to address the threats that come from substitute products. In addition to this, the enterprises have to consider the chances of successful entry to a particular market by their inevitable competitors. Strategic planning is the solution since it enables the organizations to handle and manage the rivalries intensity brought about by their competitors. Companies cannot avoid the consideration that affordable price provision of their products handles clients’ bargaining powers. Business companies can and will improve their profitability levels by devising proper strategies when it comes to dealing with the bargaining powers of suppliers.
Introduction
Auto industry evolution is highly influenced by innovations such as societal infrastructure, business structures, fuels, suppliers, market changes, manufacturing practices and vehicle components. Historically, auto industry came from the engine developments and new mediums discovery for carrying energy. The mediums include; new fuels, steam and gas. This was during 1800s. It is also important to point it out that the initial automotive firm was established in America and Europe in 1876. More so, the first motor vehicle was developed in Europe and America in the same year 1876. The other technological developments came into being between 1890 and 1900, which include a floor-mounted accelerator as well as a steering wheel. As a result, the developments discussed above speeded up the auto industry developments, hence vehicles becoming more simple when it comes to using them (Freedman, 2010).
Industry Definition
The industry designs, manufactures, develops, sells and markets motor vehicles. Additionally, the American Automotive Industry targets diverse national markets. Sources indicate that in the fiscal year 2008, the industry was able to produce close to seventy million vehicles including commercial cars and vehicles. More so, in the same year 2008, new 79.9 million automobiles were able to go on sale. Besides, the industry witnessed a pricing pressure from the cost that materials had in the same period. It also witnessed pricing pressure, particularly from changes in customers’ habits of buying the product (Freedman, 2010). Currently, the industry is encountering the rising external competition. This comes from the public transport sector.
Industry Profile
The industry’s profile is all about the size of the industry and its growth together with the industry’s consolidation. Besides, the profile of the industry is on the international investment perceived rise. More so, to include in this profile is the companies’ shifts of employment. Additionally, we can include in the profile the employment procedures within the industry, the state changes. Finally, there is labor relations organization divergence as well as the health or the pension care issues (Samuelson & Marks, 2006).
Industry Structure
The American Automotive Industry has employed over one million Americans. The employees work in the manufacturing sector that is manufacturing of vehicles, parts and equipments. Changes are always common in any organization or industry. As a result, tremendous changes have been witnessed so far. Three auto Coporation that is, General Motors, Chrysler and Ford manufacture motor vehicles in large capacities as well as light trucks are sold in the United States Market. By the year 2003 however, many of the personal cars that were sold in the United States of America market were imported while others were manufactured by foreigners within North American firms (Samuelson et al, 2006). Apparently, the above big three have predominantly produced light trucks and are facing stiff competition from the foreign brands. Consequently, the big three have shed off over 600000 United States employees while companies owned by foreigners have employed over 300000 (Samuelson et al, 2006).
Bargaining Power of Buyers
It is very critical to establish strong relationships between the American Automotive Industry and the buyers. Consumers are the key people who make the business run well. Ideally, the ultimate consumers and the industry have a relationship which leads to tipping of the power axis entirely in consumers’ favor. The nature of the commodity of the automotive relatively standardized, enables consumers to exercise more power where there is this relationship. Moreover, the costs frequent switching that relate to the selection of the competing brands of the industry’s products enable the consumers too to exercise more power where the same above relationship is. Nevertheless, the huge consumer base that which is in relation to the ratio of the productive causes the industry to remain powerful marginally (Warner, 2010).
Bargaining Power of Suppliers
More power is substantially bestowed to the favor of the industry in the relationship between the suppliers and the industry. Generally, very powerful buyers are in the industry and they hold great abilities to dictate the terms individually towards their own suppliers. Grand proliferation absence ensures that buyers are powerful instruments in the automotive industry (Warner, 2010).
United States have ninety percent (90%) value added and value shipments from its most major automotive companies. Secondly, automotive parts have a huge role to play towards the existence of the industrial powers. These automotive parts are used in large masses in automobiles and commodities that are standardized (Freedman, 2010).
Competitive Rivalry in the Industry
There is extreme global automotive industry rivalry. However, in the United States market, there is high ratio of concentration observed and this is a sign of reduced levels of competition in the industry. The Automotive industry in States currently, is not favorable of the best selling automotive companies. The three largest of these companies are the General Motors, Daimler Chrysler and Ford. Many global companies currently have equally emerged in the market to compete and the companies in the United States continue to be globalized. For instance, records show the entry of Toyota together with Honda manufacturers of Japan in 1980s in the United States. They are companies that have always devoted themselves towards ensuring that the market share increases tremendously. Currently, cultures and associated philosophies determine the rival firm’s diversity. This has lead to the Automobile industry rise intensity of the rivalries. Besides, the growth of markets has continually reduced in the United States. Thus, if companies are not going to fiercely do all they can and secure substantial profits, they are likely to avert losses in their market share (Norcliffe, 2006).
Threats of New Entrants
There has been a substantial barrier to entry into the automotive industry. High capital is required for a new company. Thus, establishing a manufacturing capacity with an aim of attaining minimal possible efficient scale becomes very prohibitive. Additionally, the manufacturing of the automotive facility cannot be revived easily in case of failure since it is specialized relatively. However, in as much as new entry barriers of new companies are substantial, strategic partnerships is currently applicable for established and major companies to venture into upcoming markets. More so, entry is being achieved through buying out other companies or merging with other companies. Indeed, currently there are negligible barriers to enter into the upcoming markets. For example, in the 1890s, the United States Companies were able to welcome companies from Japan to its market after they realized how challenging it was for the firms that were there already to ensure quality and lowly priced vehicles were availed to the market. Besides, the big, complex automotive companies apparently are globalized and have entered the foreign markets and made diversified success degrees (Norcliffe, 2006).
Threats of Substitutes
In the American Auto Industry, substitute threats have fairly been mild. In as much as there are many other transportation means that are readily available to people, very few of them are convenient. More so, the other means of transportation do not provide utility value or independence that can be availed by automobiles.
The switching costs that are linked to employing an alternative mode of transportation for example a train can be high especially in terms of time consumed. However, in terms of cost, using a train as a mode of transportation is less expensive when compared with the cost of fuel consumed in the same trips, insurances of cars, maintenance as well as parking. In global urban where there exist very high population densities, there are substitutes such as transit as well as bicycles and walking by foot, which are cheaper as compared to using the automobiles. Thus, alternative modes of transportation will always be preferred. Besides, the social and the cultural attitudes of people make them not own automobiles in various parts of this planet. Other constraints bur people from owning automobiles. These include someone’s social class, people’s religion, the region’s geography and land topography as well as factors of race (Warner, 2010).
Conclusion
The American Auto Industry has faced many challenges in recent within the Automotive Industry itself. Porter’s Five Model analysis enables us to understand the various strategic approaches that are critical to handle these challenges. The firm can, however, remain competitive if it can address the issue about new entrants. These new entrants enter into both potential and American market niches. More so, the American Automotive Industry has to marshal sufficient resources to beat the existence of substitutes available in the market. Besides, the firm has two device effective strategies if it has to fight these existing substitutes in the market.
The Industry in the context must address the buyers and suppliers bargaining powers whilst revisiting the issues on competitive rivalry from the auto Industry competitors venturing into United States Automotive Industry market. Through the industry addressing the current issues as evidenced under the Porter’s Five model evaluations, daily operations will have an opportunity to be efficiently managed. Eventually, the American Automotive Industry secures a huge competitive market as well as clientele base that facilitates high levels of profitability. Consequently, this increases the industrial levels of performance (Png, I., & Lehman, 2007.
References
Freedman, J. (2010). The U.S. Auto Industry: American Carmakers and the Economic Crisis. Rosen Pub. Group.
Norcliffe, M. (2006). The automotive industry in emerging markets:America’s automotive industry. London: GMB.
Png, I., & Lehman, D. E. (2007). Managerial economics. Malden, MA: Blackwell Pub.
Samuelson, W., & Marks, S. G. (2006). Managerial economics. Hoboken, NJ: John Wiley and Sons.
Warner, A. G. (2010). Strategic analysis and choice: A structured approach. New York: Business Expert Press.
