Automotive Industry Analysis According to Porter's - Research Paper Example

This factor therefore forces existing firms to compete to gain more market share in major and minor niche product markets. The overall intensity of the rivalry among firms is therefore on the higher side. (“ Automotive Manufacturing in the United States” 20) Relative Power of other stakeholders- High Rating Automotive industry is an industry which is based upon different stakeholders such as manufacturers, dealers, banks and financial institutions as well as government. The linkages between the stakeholders therefore are relatively complex and problems with one stakeholder can really see significant impact on the automotive manufacturing firms.

During recent economic downturns, automotive sector was hit hardly due to credit crunch. The involvement of government was on the higher side too as US and other governments made equity participation to help automotive manufacturing firms to survive. Environmental groups are also significant stakeholders and their relative power may bring fundamental shifts in the industry due to threats posed by carbon emission to the environment. Overall government regulations are stringent and need to be complied with.

("General Motors Corporation Company Profile.” 30) Threat of New Entrants- Moderate Rating New entrants are firms willing to enter into the industry to take advantage of available business opportunities. The overall market size of the Automotive manufacturing market in US is over $200 billion as per estimates made in 2010. Such large market size therefore makes this industry one of the lucrative opportunities for new entrants despite the fact that cost of entry and other entry barriers are high.

Typically, automotive sector requires high capital expenditure along with a well developed network of dealers and financial institutions however; those firms which are already established in other markets may find US market a relatively lucrative market. (“Automotive Manufacturing in the United States” 18). This factor therefore may seems to be a high rating factor considering the fact that firms like GM are increasingly facing product recalls due to production and design faults. Established brands at international level like Toyota, Mercedes, and Volkswagen may get good brand recognition due to their international repute and presence.

Threats of Substitutes- Moderate Rating Substitutes are the alternatives available to the consumers to use in lieu of current product under use. One of the key threats is the increasing use of public transports by the passengers due to higher cost of maintaining the vehicles. The increasing costs associated with gasoline, taxes, carbon emission therefore may restrict the ability of average household income holders to go for new cars. (“ Automotive Manufacturing in the United States” 19) Used cars are another substitute available to the consumers especially due to overall uncertainty prevailing into major markets.

It has been suggested that overall consumer confidence is at lower levels and consumers do not prefer to make bigger purchases. This threat however may be of moderate nature as factors like brand loyalty and high switching cost may restrict buyers to go for substitutes. Supplier Power- Moderate Suppliers provide essential raw materials to firms to manufacture finished goods. The overall materials used in the production of automotives are diverse in nature