Automobile Industry - Case Study

Introduction

The global car culture is pretty evident it has been a factor of shaping the global economy and has also contributed towards the lifestyle of the global community. Europe alone accounts for 12 million workforces whereas the United States employees over 8 million; and Japan has a workforce of more than 5 million (ACEA, 2019). In 2018 alone 98.1 million cars were produced with 97.2 million registrations the global automotive industry has been on continuous slow growth and it is expected that by the year 2020 the profits will rise due to the growing car culture in the emerging markets. Greater China (includes Hong Kong and Taiwan) took over Europe in the worldwide production share in 2012 and currently has a share of 29% in the production compared to 24% in Europe (Mckinsey&Company, 2019). This report will analyze the Porters Five Model and PEST for the worldwide motor vehicle industry and weighing on the importance of how importing vehicles is a better option than manufacturing in the context of Australia. 

Porters five forces

Bargaining power of supplier power

The suppliers in the automotive industry pose weak bargaining power due to the fact there are no big suppliers and there is no threat of any forward integration (Min, 2005). The supplier industry has many firms but is virtually the same in terms of product quality and pricing decreasing their power. Even though manufacturers do not have any substitute resources to obtain any alternatives yet the switching cost is low for the manufacturers and they work under a strict guideline of the manufacturer as they dominate over these firms. 

Bargaining power of buyer 

The individual buyers which dominate the market as the leading segment of the market are price sensitive have low switching cost to either alternative brand or any different mode of transportation giving them power. Buyers do not pose any threat of backward integration, being loyal to a brand due to its experience decreases the power of buyers to a certain level. There are many options for the buyers which gives them high bargaining power. 

Threat of substitution

The industry has several substitutes in the category of public transportation like taxis, bus, trains, airplane, and ferries. However, none of these substitutes provide the experience, prestige, and convenience of owning an automobile which is a major part of the car culture globally (Lee, 2011). Many commuters are influenced by the facts that alternatives do not require any maintenance, are pocket-friendly and hassle-free the cons still outweigh of owning a car making the threat of substitution a weak factor in the industry. 

Threat of new entry

Breaking the barriers of high investment, improved research and developed, cost-friendly and a unique experience for the consumer is not realistic in a matured market like automobile (Uzwyshyn, 2012). There are over 50 car manufacturers and the market is still dominated by Top 10 brands. Registering a brand in the minds of the customer is extremely difficult due to the product being high priced with the existing high level of competition which is why market penetration will not be significant and any chance of gaining market share is very low. Law and regulation do not pose any barrier for new entrants but achieving economies of scale to produce high-quality vehicles on a low price are difficult.  The threat of new entry is low for the market.

Competitive rivalry

The face of the automotive competition has seen massive changes in the recent years, the global “big five” which are Toyota, Ford, General Motors, Hyundai and Volkswagen were pushed back by the French Japanese partnership of Renault-Nissan alliance the new market leader in terms of unit sold standing at 10.6 million cars in around 200 different countries (Pai, 2019). The automotive industry can be considered as an oligopolistic where it is dominated by a few numbers of car manufactures since past many decades, the huge matured industry has a high customer loyalty it can be safely assumed that the industry is unique and faces the high level of competition threatening the market share and growth.