Porter’s Five Forces of Competition in the U.S. Automobile Industry

Customers

The bargaining power of customers in U.S. automobile market is strong because the market is very competitive and customers have a lot of information. Although U.S. vehicle buyers are pretty loyal when they come to automobile brand, they are willing to consider shifting their brand preference due to quality and fuel economy issues. In this relation, automakers have a weak supplier bargaining power over their customers.

Suppliers

It is understandable that the bargaining power of suppliers is weak in the U.S. automobile industry. Despite of considerable decline due to the global recession, automotive part industry in the U.S. is very competitive because of the presence of European and Asian suppliers. As of 2010, there are about 5,000 U.S. based suppliers and nearly 1,000 foreign suppliers in the country. Thanks to the pressure that foreign suppliers exert on domestic suppliers, competitive price is offered and U.S. automakers can take advantage to reduce costs and provide customers with vehicles at better price to compete with foreign automakers. In this situation, automakers have a strong buyer bargaining power over their part suppliers.

Current competitors

The intensity of rivalry of competition in the U.S. automobile market is strong as many automakers from all continents are now present. The market is now shared by about 20 automakers. Detroit Three (GM, Ford, Chrysler) and four foreign companies include Toyota, Nissan, Honda and Hyundai is dominating the market with 83.4% market share. The market tends to be fragmented since Detroit Tree automakers no longer dominate the market.

New entrants

The barriers for new entrants are moderate. As a result of high priced fuel and economic concerns, car buyers are more price-sensitive and quite open to overseas carmakers. However, the price and fuel economy are not a stable factors to form the barriers as U.S. automakers are improving their drawbacks. Moreover, recent recalls by Toyota and Nissan are changing people view over overseas automobile brands. Hence, the barriers to new entrants is getting firmer.

Substitute products

There are few substitute products to automobile in the U.S. market. In metro areas and crowded cities, public transportation services such as buses, trams and trains are available. Nevertheless, due to the drawbacks of these services including time control and unreliability, the pressure they may exert on automobile market are insignificant.