In 2009 the American
auto industry was in a dire economic state. Chrysler was in Chapter 11,
GM was on the brink of bankruptcy, and Ford’s future was at best
uncertain. The demise of the U.S. auto industry would have a devastating
impact on our national economy and specifically the economies of Michigan and
Ohio.
Economists occasionally
use Porter’s five forces framework when making a qualitative evaluation of a
firm’s strategic position. According to Porter, his model should be used
at the industry level, defined as a marketplace in which similar or closely
related products or services are marketed. This research paper requires
the application of Porter’s Five Forces Model to the auto industry.
Porter’s analytical
framework consists of those forces that affect a producer’s ability to serve
its customers and make a profit. A change in any of these five forces
requires a re-assessment of the marketplace. The five forces include:
1) The threat of substitute products: The existence of
close substitute products (i.e., high elasticity of demand) increases the
propensity of customers to switch to alternatives in response to price
increases.
2) The
threat of the entry of new competitors: Unless there are significant
barriers to entry, profitable markets that yield high returns will attract
firms (i.e., perfect competition), effectively decreasing profitability.
3) The
intensity of competitive rivalry: As in the case of oligopoly markets,
rivals may choose to compete aggressively, non-aggressively or in non-price
dimensions.
4) The
bargaining power of customers: The ability of customers to put the firm
under pressure due to availability of existing substitute products, buyer price
sensitivity, uniqueness of the products, etc.
5) The
bargaining power of suppliers: The cost of factors of production
(e.g. labor, raw materials, components, and services such as expertise)
provided by suppliers can have a significant impact on a company’s
profitability. As such suppliers may refuse to work with the firm or
charge excessively high prices for unique resources.
References
Porter, M.E. (1979)
“How competitive forces shape strategy”, Harvard Business Review,
March/April 1979.
Porter, M.E. (1980)
“Competitive Strategy”, The Free Press, New York, 1980.
Porter, M.E. (1985)
“Competitive Advantage”, The Free Press, New York, 1985.
Develop a detailed paper
applying Porter’s Five Forces Model to the American automotive
industry.
Your paper should be between 2200 and 2500 words, in APA format and structured
as follows:
1.
Cover page with a running head
2. Abstract
3.
Introduction to the Auto Industry
3.1. Industry
Definition
3.2. Industry
Profile
3.3. Industry
Structure
3.4. Future
Outlook
4.
Porter’s Five Forces Strategy Analysis as it applies to the Auto Industry
4.1.
Bargaining Power of Buyers
4.2.
Bargaining Power of
Suppliers
4.3.
Competitive Rivalry in the Industry
4.4. Threat
of New Entrants
4.5. Threat
of Substitutes
5.
Conclusion
6. References
