Five Forces Analysis of the Automotive Industry

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Five Forces Analysis of the Automotive Industry

Industry definition

The global automotive industry includes all companies involved in the manufacturing of automobiles, including primarily passenger cars, SUVs, vans, lightweight trucks and, secondarily, commercial vehicles, such as heavy transport trucks, but excluding complementary products such as tires or fuel. Selling to the end customer can but does not necessarily have to be part of the business. Examples include, but are not limited to, General Motors, BMW, Audi, Daimler-Chrysler, Mercedes, Toyota, Nissan, Tata Motors, etc. From a geographical point of view, the automotive industry is a global industry, although separate national (e.g. the American market) as well as supranational markets (e.g. the Triad markets) can be identified.

Threat of New Entrants

very low.

Capital barriers:

High barriers for new entrants, as they would have to acquire not only the financial, but also the structural capital (contacts with suppliers, buyers, distributors, innovators, researchers, ...) that is necessary in order to compete effectively

the extremely high costs involved and the fact that it is a very capital intensive industry represent another barrier: establishment of production & plants is already costly, but substantial capital is also required to always keep R&D up to date, because innovation is one of the key success factors in the industry

“Maturity” of the industry:

overall growth and profitability are minimal, which makes it unattractive for potential new entrants

economies of scale:

any company who wants to compete successfully must achieve the necessary economies of scale through mass production, which is very difficult for new entrants

price pressure:

unless a new entrant wants to compete in the luxury segment, the considerable price pressure that exists in the market is another barrier (connected to economies of scale, obviously)...