Porter's Five Force Analysis of Automobile Industry

MEMO

To: Gregory Collier

Lecturer

From: Lu Cheng, (617)817-9383

School of Management

Boston University

Date: February 2nd , 2012

Re: Porter's Five Force Analysis of Automobile industry

The memo is to analyze the positioning of General Motors in Cars & Automobile Manufacturing industry using Porter's Five Forces model.

Firms in Cars & Automobile Manufacturing industry produce and assemble automobile components into automobile vehicles and sell to consumers or businesses.

Overall, automobile industry faces low threat of entry, medium competition in rivalry, low power of suppliers, medium power of buyers and high threat of substitutes. High capital intensity and rapid technological change set high barriers of entry and make potential entrants less likely to compete effectively with incumbents. Firms need to frequently launch newly designed models to stimulate sales and react to the growing trend of fuel-economy for consumers. In this industry, suppliers are merely concentrated and largely interchangeable because of the suppliers' inability to differentiate their products. They offer large price discounts to automakers as a result of global competition and threat of backward integration. Steel represents the most important raw material that can largely influence automakers' profitability. The industry faces high threat from substitutes of public transportation especially when fuel prices become too high to afford. Buyers have medium power as it is easy for consumers to switch to other brands or substitutes. Overall, rising commodity prices accompanied by economic crisis squeeze the profitability