Lead American Automobile Industry

The American automobile industry has seen a lot of ups and downs, not only because of the major impact of recession but this down turn is also due to rapid technological enhancements, competitors with an advantage of comparatively low cost and cheap labor, increased awareness of global warming and ever-changing consumer demands and preferences.

These are major challenges which may result in curtailing profits and decreasing higher shareholder's profit value. Although the industry is picking up now but still the current scenario looks way different than its prior booming years where the industry was well supported by government interventions, supply-base changes, and consumer driven adjustments affecting the complete value chain.

The industry has shown encouraging improvement since 2010 onwards. As per the research (Plunkett Research, para.1, 2012), there was a sharp decline in sales from 2007 till 2009 i.e. from 13.2 million to 10.4 million. And further adding to this turmoil, two major players of the industry, General Motors and Chrysler filed for bankruptcy. Furthermore, small scale dealers, supplier and supplement manufacturers also suffered their share of shock. Later on, 61% of General Motor (GM) shares (Plunkett Research

1. The threat of new entrants

In the auto manufacturing industry, this is generally a very low threat. Factors to examine for this threat include all barriers to entry such as upfront capital requirements (it costs a lot to set up a car manufacturing facility!), brand equity (a new firm may have none), legislation and government policy (think safety, EPA and emissions), ability to distribute the product (Alfa Romeo has been out of the US since the early 90s largely due to the inability to re-establish a dealer network. But if you are looking at Singapore, for example, only one Alfa Romeo dealer is needed!).

2. The bargaining