Abstract
Many industries across the globe are experiencing numerous transformations due to some of the recorded trends, such as technological innovations and the need to protect planet Earth. In the United States, the automobile sector has faced numerous challenges that might affect its future performance. While three companies remain dominant, newcomers from Japan, such as Toyota and Honda, are presenting new trends that will affect the industry’s future outlook. The completed Porter’s Five Forces Framework analysis has revealed that the bargaining powers of suppliers and customers remain low. The level of industry rivalry is high while the threat of emerging competitors is quite low. The examination has indicated that customers would be willing to consider alternative products in the near future.
Introduction
The American automobile industry is one of the leading contributors to the country’s gross domestic product (GDP). Over the decades, the sector has recorded significant growth patterns characterized by an increasing number of companies, suppliers, and distributors. Some of the major companies involved in the manufacturing and marketing of automobiles in the country include Ford, General Motors (GM), and Chrysler. Since the 1970s, diverse trends and economic factors have led to negative outcomes for this industry, such as competition and unpredictability of oil prices. Modern technological developments, issues to do with climate change, and changing consumer needs have triggered additional industrial dynamics that might affect the future outlook of the American automobile industry.
Introduction to the Automobile Industry
Industry Definition
The American automobile industry would refer to all companies, suppliers, and professionals involved in the production, innovation, and retailing of a wide range of vehicles. The sector would encompass third-party players involved in the provision of maintenance equipment and services to marketed automobiles. In some regions, the industry would encompass all firms and business entities that develop and market various components required to manufacture cars, including engines and body parts (Sakuramoto et al., 2019). The existence of many companies in this sector explains why it remains one of the largest in the United States (U.S.).
Industry Profile
In the U.S., the automobile industry has been lucrative and capable of delivering profits. Since the 1990s, the sector has managed to record sales exceeding 600 billion US dollars (Shigeta & Hosseini, 2020). The profitability index for most of the companies involved in car manufacturing has been rising steadily due to the changing demand for modern cars. Sakuramoto et al. (2019) observed that the sector has been contributing significantly to the country’s GDP. Within the past half a century, Americans have associated the industry with these three major players that innovate and deliver cars that are identified as purely American: Chrysler, Ford, and GM (Shigeta & Hosseini, 2020). However, the past two decades has seen an increase in the number of vehicles from the Asian market. In 2008, the global economic recession affected the overall performance of most of the corporations in the industry. The changing times have led to short-term challenges and trends that have continued to make the industry less profitable.
Industry Market Structure
In terms of market structure, the U.S. automobile industry could be described as oligopolistic. This concept means that only a few successful corporations operate in the sector whereby they innovative, design, and manufacture cars for the targeted customers. To achieve their goals, players in such a market structure consider practical ways to develop products that are more or less the same (Shigeta & Hosseini, 2020). This attribute means that the level of differentiation for the automobiles remains low. In this market, companies try to maximize their revenues by offering divergent prices, applying specified promotional strategies, and considering key areas of strength. The case of the U.S. automobile sector reveals that the three corporations outlined above have remained dominant over the years. The cooperation of these leaders with other stakeholders ensures that most of the final products are admirable and capable of meeting the changing demands of the targeted customers.
Future Outlook
Analysts and scholars focusing on the automobile sector have presented various observations that could influence the future trends of most of the existing companies. For instance, Sakuramoto et al. (2019) believe that the current growth rate of the industry could drop from the recorded 3.6 percent to less that 2 percent within the next 5 years. According to the American Automobile Policy Council (2020), customers of the future would be compelled to incur additional expenses if they are to get high-quality automobiles in the near future. This outcome could be possible since the global community is focusing on the best ways to maximize the production of materials ad products that have the potential to protect the integrity of the environment. Electric cars are expected to dominate in the coming years, thereby triggering a sharp increase in their respective prices.
While the demand for electric cars could increase in the near future, gas powered automobiles would remain a common feature of the industry in the next decade. Specifically, a report by the American Automobile Policy Council (2020) indicated that over 95 percent of cars throughout the 2030s would be relying on gas. However, regulators will become more strict and involved to ensure that most of the produced and marketed automobiles are capable of meeting the demands of the customers. The inclusion of efficient engines and use of sustainable materials will become major requirements for the players in this sector. Companies that will ignore most of these attributes will have higher chances of becoming obsolete or failing to realize their maximum potential.
Porter’s Five Forces Strategy
Analysts and leaders of organizations can use various tools to examine the existing level of competition and introduce proper strategies to implement meaningful change. Porter’s Five Forces Framework has become a common method for examining the business environment of any company that plans to improve its strategy (Porter, 1979). Similarly, the five attributes associated with this model guides decision-makers to identify specific industries based on the recorded level of competition, business rivalry, and attractiveness (Porter, 1985). The sections presented below capture the unique aspects of the U.S. automobile industry based on Porter’s Five Forces framework.
Bargaining Power of Buyers
The American automobile industry has experienced various trends that have impacted the overall expectations and views of most of the potential buyers. Sakuramoto et al. (2019) acknowledge that customers tend to influence the operations of any given company by presenting their demands, preferences, and tastes. However, this sector has been associated with an increasing number of customers who are aware of their preferable car brands. The minimum level of differentiation for most of the automobiles makes it possible for more people to make timely and informed decisions. From the 1990s, the industry experienced a new trajectory whereby foreign companies began their operations in the country, such as Honda and Toyota (Shigeta & Hosseini, 2020). This development led to additional competition for most of the players in the country.
Despite these issues, the country has maintained a sizable number of corporations that dictate the nature and quality of available products. Their specific marketing and innovative tactics dictate whether the customers would prefer their brands or not (Sakuramoto et al., 2019). However, the existence of three major competitors is a situation that has left the targeted buyers with little or no negotiating power. This outcome means that the leading corporations still have the potential to set and dictate their products’ prices. The presence of dealers in the country has streamlined the process, thereby making it impossible for the intended buyers to trigger significant transformations in the sector. This analysis would indicate that the overall bargaining power of the targeted customers in this specific sector remains low.
However, experts predict a unique scenario whereby future customers might be concerned about a wide range of issues that might influence this industry. Some of the leading ones could include sustainability of the produced cars and the ability to engage in green reporting (Sakuramoto et al., 2019). Organizations that want to overcome this challenge will need to become innovative and consider the best ways to address most of these emerging concerns. Such observations could indicate that the low bargaining power of buyers might increase in the near future since more people want to make the global environment more sustainable.
Bargaining Power of Suppliers
The processes involved in the manufacturing of automobiles are complex and require the involvement of different suppliers. In the American setting, most of the leading companies have established meaningful relationships with various stakeholders whose roles include providing timely inputs and designing the relevant parts for their cars. Such corporations offer the required support and funding to ensure that most of the required materials and supplies are of the highest quality and delivered in a timely manner (Sakuramoto et al., 2019). In some instances, the companies have selected responsible suppliers depending on the nature of the intended materials and the anticipated organizational goals.
The outlined trend has created a scenario whereby majority of the suppliers have to follow the terms most of the leading companies present. These corporations consider the best ways to switch or work with different partners depending on the intended goals and changing economic trends. This strategy has been observed to reduce the possible impact of most of these suppliers (Shigeta & Hosseini, 2020). Companies can also provide guidelines for innovating and producing superior materials that resonate with the expectations of the final customer. Such measures have compelled majority of the suppliers to remain involved and follow the guidelines most of the automakers outline.
The outlined processes have reduced the bargaining powers of suppliers in the U.S. automobile sector significantly. Wiggins et al. (2022) observe that the country has continued to record an increasing number of suppliers capable of meeting the demands of the manufacturers. The fact that the process of developing superior cars requires diverse raw materials and spare parts means that no single firm can produce and deliver a wide range of components. Some of the key ones include seats, tires, engine parts, and windscreens (Sakuramoto et al., 2019). The fact that most of the companies need to acquire detailed guidelines and requirements from the car manufacturers means that the level of bargaining power reduces completely. This reality explains why the suppliers should be keen to attract the relevant manufacturers if they are to remain in business and achieve their business aims.
Competitive Rivalry in the Industry
Within the past two decades, the American automobile industry has experienced unexpected trends that have the potential to disorient future performance. For instance, Wiggins et al. (2022) observe that the changing economic times have compelled some of the companies to file for bankruptcy or transform their models if they are to become more competitive. During the same period, new companies have emerged that are focusing on some of the best approaches to take the issue of sustainability to the next level. For example, Uber, Google, and Tesla are some of the leading corporations that are keen to take the electric car concept to the next level. This goal is intended to reduce the industry’s overreliance on oil and gas while at the same time helping protect the natural environment (Shigeta & Hosseini, 2020). The fact that most of these companies have access to emerging technologies and are considering the use of electric cars means that the traditional firms should reconsider their models.
In the American setting, Japanese automakers have continued to attract more customers with their hybrid and high-quality products. These organizations are relying on superior and automated car manufacturing processes that are capable of minimizing both wastes and expenses. The end result is that such companies have been able to market their completed cars at lower or affordable prices. Consequently, the trend has led to increasing level of competition in the industry. Corporations that are unable to identify and consider most of the recorded changes might be unable to achieve their long-term aims. Experts indicate that more companies from elsewhere would be considering to enter the American market and meet the needs of the targeted customers through the provision of spare parts in a timely manner (Shigeta & Hosseini, 2020). A detailed consideration of such a scenario would be appropriate for companies that want to remain competitive in this market.
The nature of this development reveals that the level of competitive rivalry in the American automobile industry is quite high. Buyers are now empowered to make informed choices and consider products from different automakers that have the potential to meet their diverse needs. The increasing number of car manufacturers in the U.S. is a situation that is empowering more customers and making it easier for them to make the most appropriate decisions (Shigeta & Hosseini, 2020). The trends projected in the future will maximize the level of competitive rivalry for most of the existing companies.
Threat of New Entrants
The past two decades have revealed that most of the corporations operating this industry have huge financial resources to support innovative and production processes. Shigeta and Hosseini (2020) observe that certain attributes have the potential to discourage investors from targeting this sector, including government policies, funds, and capital needs. Most of the existing companies have established unique distribution channels that are intended to support organizational aims. This analysis reveals that any new firm that seeks to launch its operations in this sector will encounter numerous obstacles (Shigeta & Hosseini, 2020). Foreign corporations that have entered the industry within the past few years have a history of producing and marketing cars to different customers, such as Toyota. The presence of a small number of giant corporations makes the market rigid and unwelcome to newcomers or starters.
The government has been keen to introduce additional policies and laws intended to govern the process of innovating and manufacturing automobiles. The failures experienced in the domestic market compelled the relevant authorities to allow foreign companies to invest I the country and focus on the demands of most of the customers. The demand for sustainable cars capable of helping protect the natural environment means that some companies might get a chance to operate in the U.S. automobile sector (Shigeta & Hosseini, 2020). However, these realities and trend show conclusively that the overall threat of new entrants in this industry remains low to moderate.
Threat of Substitutes
The issues affecting the U.S. automobile sector are similar to the ones experienced across the globe. For instance, more people are becoming concerned about the challenges of climate change and global warming than ever before. This reality is compelling companies to engage in research and development (R&D) in an effort to produce items that can support this key requirement. The automobile industry is currently grappling with numerous issues, such as the increasing prices of gas and the unsustainable nature of most of the required raw materials (American Automobile Policy Council, 2020). The idea of electric cars means that these products are going to become more expensive in the coming years. Consequently, majority of the customers will be keen to consider most of the available alternatives to ensure that they are capable of meeting their changing needs.
To address most of these uncertainties, many companies in the American automobile industry have been keen to deliver cars that are fuel efficient and affordable. However, the costs incurred throughout the production process have compelled most of the corporations to increase the prices for their cars. These developments have encouraged most of the customers to identify additional options that are capable of meeting their needs. For example, some people have decided to start purchasing secondhand cars since they are efficient and cheaper. Such a trend means that the exiting companies will only manage to attract a declining number of customers in the future (American Automobile Policy Council, 2020). Additional means of transportation common become common, such as the use of bicycles and public means to commute from point A to B. The current challenge associated with the increasing prices of gas could discourage more people from purchasing new cars from some of the leading companies. These realities will explain why the threat of substitutes is moderate for this American industry.
Conclusion
The U.S. automobile industry has experienced a wide range of changes due to the recording environmental challenges, emerging competitors, and customer expectations. In the recent past, the sector has become more dynamic due to the increasing number of manufacturers, suppliers, and policy initiatives. Despite these trends, the industry appears profitable and capable of supporting the goals of different corporations. The analysis has revealed that the sector continues to witness increasing competitive rivalry and threat of substitutes. The forces of new entrants and the bargaining powers of both suppliers and customers still remain low in the sector. A detailed analysis of these issues could guide managers of the leading companies to make informed decisions if they are to achieve most of their business aims.
References
Porter, M. E. (1985). Competitive advantage. The Free Press.
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 1-10.
American Automobile Policy Council. (2020). State of the U.S. automotive industry: Investment, innovation, jobs, exports, and America’s economic competitiveness. AAPC.
Shigeta, N., & Hosseini, S. E. (2020). Sustainable development of the automobile industry in the United States, Europe, and Japan with special focus on the vehicles’ power sources. Energies, 14(1), 78-109.. Web.
Wiggins, R. Z., Feldberg, G., Nye, A., & Metrick, A. (2022). The rescue of the US auto industry, module Z: Overview. Journal of Financial Crisis, 4(1), 300-367. Web.
Sakuramoto, C., Di Serio, L. C., & Bittar, A. V. (2019). Impact of supply chain on the competitiveness of the automotive industry. RAUSP Management Journal, 54(2), 205-225. Web.