Automobile Industry

Question :

Analyze five industry forces for the Global Automobile industry. Summarize whether each force creates an opportunity or a threat to industry profitability. All written assignments must be in essay format. 

Answer :

Abstract 

The automobile industry is one of the fastest-growing industries in the world. There are several players (small, medium, and large) operating in the market giving tough competition to each other. There is a low threat of new entrants that is a favorable point for the industry. But it has to deal with dynamic political and legal factors in order to operate effectively in the market. This paper focuses on analyzing the intensity of competition in the global automobile industry. Porter's five forces as well as PESTEL analysis has been used to complete the paper.

Introduction

The automobile industry is one of the largest industries in the world. It comprises of a wide range of companies that are involved in the design, development, manufacturing, marketing, as well as selling of motor vehicles. It is one of the largest sectors by revenue in the world (Law, 2017). 

Key competitors  

There are several organizations operating in this industry throughout the world. Some are big companies while some are small and medium. Every company has a set of competitors. The following are the competitors giving a tough fight to each other. Toyota, Volkswagen, Ford, Honda, General Motors, Fiat Chrysler Automobiles, and Nissan are the key competitors in terms of revenue (Deyo, 2016). Toyota is the largest organization in terms of revenue in the world. It accounts for $280.5 billion. Volkswagen accounts for $275.2 billion, Ford accounts for $149.9 billion, Honda accounts for $ 142.4 billion, General Motors accounts for $137.2 billion, Fiat accounts for $121.1 billion, BMW accounts for $116.6 billion, and Nissan accounts for $96.3 billion. In terms of market share, Toyota again retains the leadership position in the world with 10.24% followed by Volkswagen 7.59%. They are followed by Ford, Honda, Nissan, Hyundai, and Chevrolet with 5.59%, 5.46%, 5.15%, 5.05%, and 4.52%.

Porter’s five forces 

Porter's five forces is a very significant tool or framework that is used to analyze the intensity of competition in an industry. With the help of this tool, the number as well as the power of competitive rivals of an organization can be identified and analyzed (Wellner & Lakotta, 2020). It helps in identifying potential new market entrants, customers, suppliers, the influence of a substitute product on the profitability of the organization.

The threat of new entrant

The threat of new entrants in the global automobile industry is low because it requires a huge investment in order to enter the market. Apart from this, there are several already established players are operating in the market. They have captured a significant amount of market share. Thus, it is very tough for a new company to enter the market and compete with them.

Bargaining power of customer 

The bargaining power of customers in the global automobile industry is moderately strong due to the availability of a large number of companies in the market. There is very tough competition in the market and hence every organization wants to retain their customer. It increases the bargaining power of customers in the market but due to the quality of product and brand value, some companies lower the bargaining power. 

Bargaining power of supplier 

The bargaining power of suppliers is a week because of the large number of suppliers in the market. The suppliers are also small and forward integration is minimum (Bhatia, 2016). It reduces their bargaining power in the market.

Threat of substitute 

There are various substitutes as well as alternatives modes of transportation such as taxi, trains, buses, and planes. But they do not provide the kind of accessibility and convenience as an automobile does. Thus, the threat of substitutes is also low.

Industry rivalry 

There is very tough competition in the automobile industry. There is a very strong competitive rivalry in the industry as the number of companies operating in the industry is very large. 

PESTEL analysis 

PESTEL analysis is a tool that is used to analyze the external business environment of the organization. It includes the following factors; 

Political: The political factor is very dynamic and changing. It possesses threats for the industry as the industry needs to adhere to the rules and regulations of each country in which it is operating.

Economic: The global economic condition is not good. The world economy is going through a phase of recession. Apart from this, the impact of COVID-19 on the world economy is severe. It also creates a threat to the automobile industry (Izzaty & Sastra, 2019). 

Social: Social factors are supportive as people prefer to have a luxury life. Their taste & preference is an opportunity for the industry.

Technological: Technology is also being advanced and innovative that also helps the industry to grow and develop over time. 

Environmental: It is a very serious concern for the industry as people are not highly concerned about the impact of the automobile industry on the environment. It creates a threat to the industry.  

Legal: As the industry is a global industry, it must adhere to the legal procedure of the country in which it operates in order to function effectively. 

Conclusion 

The automobile industry is one of the largest industries in the world in terms of revenue. There are several factors that are helping the industry to grow and develop while some factors are hindering the way of growth and development. Thus, the industry needs to focus on analyzing its internal as well as external environment. 

References 

Bhatia, J. (2016). Porter's Five Forces Industry Analysis of the Indian Passenger Car Industry. Pacific Business Review International, 8(7), 113-123.

Deyo, F. C. (Ed.). (2016). Social reconstructions of the world automobile industry: Competition, power, and industrial flexibility. Springer.

Izzaty, N., & Sastra, H. Y. (2019, June). The implementation of graphene composites for automotive: an industrial perspective. In IOP Conference Series: Materials Science and Engineering (Vol. 536, No. 1, p. 012133). IOP Publishing.

Law, C. M. (2017). Restructuring the global automobile industry (Vol. 4). Taylor & Francis.

Wellner, S., & Lakotta, J. (2020). Porter's Five Forces in the German railway industry. Journal of Rail Transport Planning & Management, 100181.