The Five Forces That Shape the Automotive Industry
1. Introduction
The automotive industry is one of the most important industries in the world. In order to be successful, companies in this industry have to be aware of the five forces that shape their competitive environment. These forces are the same for any industry and they determine the direction of the individual company. The five forces are suppliers, substitutes, buyers, new entrants, and rivalry.
2. Factors in the Automotive Industry
2.1 Factor 1: Suppliers
The first factor is suppliers. In the automotive industry, there are two types of suppliers: original equipment manufacturers (OEMs) and Tier 1 suppliers. OEMs are companies that produce parts and components that are used in the manufacture of vehicles. Tier 1 suppliers are companies that provide parts and components to OEMs. The supplier’s bargaining power is high if there are few suppliers or if they are essential to the production of the product. The supplier’s bargaining power is low if there are many suppliers or if they are not essential to the production of the product.
In the automotive industry, there are few OEMs and they are essential to the production of vehicles. This gives them a high bargaining power over Tier 1 suppliers. Tier 1 suppliers have a low bargaining power because there are many of them and they are not essential to the production of vehicles.
2. 2 Factor 2: Substitutes
The second factor is substitutes. A substitute is a product that can be used in place of another product. The threat of substitutes is high if there are many substitutes or if they are close substitutes. The threat of substitutes is low if there are few substitutes or if they are not close substitutes.
In the automotive industry, there are few substitutes for vehicles. The closest substitute is public transportation, but it is not a close substitute because it cannot be used for all purposes that vehicles can be used for. This gives a low threat of substitutes for the automotive industry.
2. 3 Factor 3: Buyers
The third factor is buyers. The buyer’s bargaining power is high if there are few buyers or if they buy in large quantities relative to the company’s production quantity. The buyer’s bargaining power is low if there are many buyers or if they buy in small quantities relative to the company’s production quantity.
In the automotive industry, there are many buyers but they buy in small quantities relative to production quantity. This gives a low buyer’s bargaining power for the automotive industry as a whole. However, individual companies may have a high buyer’s bargaining power depending on their market share.
2. 4 Factor 4: New Entrants
The fourth factor is new entrants. The threat of new entrants is high if it is easy to enter the industry. The threat of new entrants is low if it is difficult to enter the industry.
In the automotive industry, it is difficult to enter the industry because of the high capital requirements. This gives a low threat of new entrants for the automotive industry.
2. 5 Factor 5: Rivalry
The fifth and final factor is rivalry. The intensity of rivalry is high if there are many competitors or if they are all about the same size. The intensity of rivalry is low if there are few competitors or if they are not about the same size.
In the automotive industry, there are many competitors but they are not about the same size. This gives a low intensity of rivalry for the automotive industry as a whole. However, individual companies may have a high intensity of rivalry depending on their market share.
3. Conclusion
The automotive industry is a highly competitive industry. In order to be successful, companies in this industry have to be aware of the five forces that shape their competitive environment. These forces are suppliers, substitutes, buyers, new entrants, and rivalry.