The automobile supply

Threat of New Entrants

  1. Slow lethargic state of economy
    1. Per Capita consumption declined
    2. Productivity decreased in manufacturing level
    3. Largely cyclical in nature
  2. A Large number of firms
    1. Automotive sector has no space for new entrants
    2. Small demand base and wide choice
  3. High Fixed cost
    1. High capital costs
    2. Industry requires highly specialized technology or plants and equipments.
    3. Constant R&D: Patent and proprietary of auto designs restrict the entry into an industry.
    4. Distribution network
    5. Low availability of auto components
  4. High Exit barrier
  1. Entrant reluctant to commit to acquiring specialized asset that cannot be sold or converted into other uses if venture fails.

Bargaining Power of Suppliers

The automobile supply business is quite fragmented. Many suppliers rely on one or two automakers to buy a majority of their products. If an automaker decided to switch suppliers, it could be devastating to the previous supplier's business. As a result, suppliers are extremely susceptible to the demands and requirements of the automobile manufacturer and hold very little power

1) Automakers design and assemble, suppliers have little responsibility

  1. Trust is ruined by Ford-Firestone problem (
  2. Essentially little power is given to suppliers

Bargaining Power of Buyers

Consumer are very price sensitive, they don't have much buying power as they never purchase huge volumes of cars

1) Customers take over management of world's car business.

  1. Over capacity, wider choice, zero switching cost
  2. More shrewd customers
  3. Dealer Freedom
  4. Better-quality products: Consumers take advantage of current quality in product

Threat of substitute products

  1. Likelihood of people taking the bus, train or airplane to their destination.
  2. The higher the cost of operating a vehicle, the more likely people will seek alternative transportation options.
  3. The price of gasoline has a large effect on consumers' decisions to buy vehicles.
  4. Trucks and sport utility vehicles have higher profit margins, but they also guzzle gas compared to smaller sedans and light trucks.
  5. Time, money, personal preference and convenience in the auto travel industry.

Intensity of Rivalry among Competitors

Highly competitive industries generally earn low returns because the cost of competition is high. The auto industry is considered to be an oligopoly, which helps to minimize the effects of price-based competition. The automakers understand that price-based competition does not necessarily lead to increases in the size of the marketplace; historically they have tried to avoid price-based competition, but more recently the competition has intensified - rebates, preferred financing and long-term warranties have helped to lure in customers, but they also put pressure on the profit margins for vehicle sales

  1. Foreign Trade agitated the degree of rivalry
  2. Export becomes essential for expansion and competition

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