Description
Complete your Research Project 2 in a Word document, APA formatted, and then submit it in the Assignment section of the classroom by midnight, EST, Day 7.
The instructions concerning this assignment as well as the grading rubric are reproduced below.
In 2009 the American auto industry was in a dire economic state. Chrysler was in Chapter 11, GM was on the brink of bankruptcy, and Ford's future was at best uncertain. The demise of the U.S. auto industry would have a devastating impact on our national economy and specifically the economies of Michigan and Ohio.
Economists occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic position. According to Porter, his model should be used at the industry level, defined as a marketplace in which similar or closely related products or services are marketed. This research paper requires the application of Porter's Five Forces Model to the auto industry.
Porter's analytical framework consists of those forces that affect a producer's ability to serve its customers and make a profit. A change in any of these five forces requires a re-assessment of the marketplace. The five forces include:
1) The threat of substitute products: The existence of close substitute products (i.e., high elasticity of demand) increases the propensity of customers to switch to alternatives in response to price increases.
2) The threat of the entry of new competitors: Unless there are significant barriers to entry, profitable markets that yield high returns will attract firms (i.e., perfect competition), effectively decreasing profitability.
3) The intensity of competitive rivalry: As in the case of oligopoly markets, rivals may choose to compete aggressively, non-aggressively or in non-price dimensions.
4) The bargaining power of customers: The ability of customers to put the firm under pressure due to availability of existing substitute products, buyer price sensitivity, uniqueness of the products, etc.
5) The bargaining power of suppliers: The cost of factors of production (e.g. labor, raw materials, components, and services such as expertise) provided by suppliers can have a significant impact on a company's profitability. As such suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
References
Porter, M.E. (1979) "How competitive forces shape strategy", Harvard Business Review, March/April 1979.
Porter, M.E. (1980) "Competitive Strategy", The Free Press, New York, 1980.
Porter, M.E. (1985) "Competitive Advantage", The Free Press, New York, 1985.
Develop a detailed paper applying Porter's Five Forces Model to the American automotive industry, with a focus on the U.S. market.
Your paper needs to include at least three scholarly sources, i.e. peer reviewed articles. I strongly recommend the use of the APUS library for these sources, as most acceptable resources can only be found in protected databases.
Explanation & Answer
View attached explanation and answer. Let me know if you have any questions.
Running head: APPLICATION OF PORTER’S FIVE MODEL TO THE AUTO INDUSTRY 1
Application of Porter's Five model to the Auto Industry
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APPLICATION OF PORTER’S FIVE MODEL TO THE AUTO INDUSTRY
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Abstract
The report explores the United States auto industry by examining the industry definition,
profile, market structure, and future outlook and an in-depth analysis of Porter's five forces
analysis of the United States auto industry. The biggest players in the United States auto industry
include Toyota Motor Corporation, Honda Motor Co. Ltd, Ford Motor Company, General
Motors, Nissan Motor Company Ltd, Tesla Inc., and Fiat Chrysler Automobiles NV. The year
2009 was the most difficult year in the United States auto industry history. The year was marked
by an economic recession in the global credit market, threatening different automobile
companies like GM and Chrysler LLC, which were on the verge of bankruptcy. Given that
automobile sales are significantly reliant on sufficient financing for consumers and dealers,
companies like Chrysler and General Motors were in a severe financial status before the crisis,
which was further escalated by the collapse of the credit market. The economic crisis culminated
in a significant decline in sales running over 30 percent less than the previous month. However,
the Porter's five analysis provides significant insights into the industry, prompting the
comprehension of the different strategic techniques that would help address the issues faced by
the sector. Besides, porter’s analysis offers an essential insight into companies operating in the
sector various strategic approaches that the institutions could employ to enhance competitiveness
in the market, revealing an intense competitive rivalry among the few known brands in the auto
sector. The report conclude that the future outlook of the United States auto industry appears
positive, with an anticipated increase in sales due to increased demand for upgraded private cars.
APPLICATION OF PORTER’S FIVE MODEL TO THE AUTO INDUSTRY
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Introduction to the Auto Industry
Hill, Menk, and Cooper (2010) postulate that the United States auto industry is an
imperative element of economic development with the expansive interconnections across the
cultural and industrial fabric of the country. The automotive industry has historically contributed
about 3% to 3.5% of the overall Gross Domestic Product and has employed about 905,000
people by August 2020 (Wagner, 2020). Hill et al. (2010) indicated that the industry employs
different professions ranging from engineering, designing, and manufacturing to parts and
components. The industry is a big consumer of services and goods from different sectors like
advertising, financial, semiconductors, construction, legal, computers, machinery, and
healthcare. Notably, the automotive industry spends a significant amount on research and
development. For example, the United States automobile industry R&D is dominated by various
companies, which collectively account for 80% of the aggregate R&D or over $14B. The
companies include Tier 1 parts vendors and automakers like Toyota, Volkswagen, General
Motors, Honda, and Daimler (Hill, Menk, Swiecki, & Cregger, 2014). About 3% of the United
States GDP is used on R&D. The U.S. auto industry spends about 4% of the revenues, which
accounts for a third more than the nation's average.
The automobile industry is a source of employment, mainly in the electrical, industrial,
and mechanical engineering professions. For instance, in 2012, the automobile industry
employed 59.9% and 28% electrical, industrial, and mechanical engineers in Michigan and Ohio
(Hill et al., 2014). Thus, a decline in the United States auto industry significantly influences the
nation's economic development, as shown by the above figures. Therefore, this report explores
the United States auto industry by examining the industry definition, profile, market structure,
APPLICATION OF PORTER’S FIVE MODEL TO THE AUTO INDUSTRY
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and future outlook. Accordingly, the report will focus on an in-depth analysis of Porter's five
forces analysis of the United States auto industry.
U.S. Auto Industry since 2009
The year 2009 was the most difficult year in the United States auto industry history. The
year was marked by an economic recession in the global credit market, threatening different
automobil...
