Industry Analysis of Automobile Industry Using Porter’s Five Forces 

 

Threat of new entrants: Weak

Due to the huge capital requirement to establish a car brand, it is difficult for new brands to break into the industry. To set up the manufacturing facilities, distribution network, and hire skilled staff, a significant capital will be required at the outset. Another significant impediment is the level of competition from existing brands. Chances of gaining a significant market share are slim unless a new brand introduces an innovative and differentiated product to the market. While the law was not previously an obstacle to new entrants, legal requirements have increased in recent years, adding another barrier to entry. New players may face significant challenges in terms of brand image and reputation. Existing brands have significant advantages in terms of brand image and equity. Any new brand would have to put a lot of emphasis on product quality and engineering. It may be simple to obtain raw materials, but small businesses will struggle to achieve economies of scale. Furthermore, breaking into new markets is difficult. To discourage foreign brands, some governments have imposed high import taxes. As a result, there are several factors that reduce the threat posed by new players. Apart from Tesla, there is hardly a new brand in the automobile industry that has been able to make a significant mark on a global scale.

Bargaining power of suppliers: Weak

Because the majority of suppliers in the automotive industry are small businesses, their bargaining power is limited. Only a few of them are large enough to be considered significant. For the aforementioned reasons in the first category, the threat of forward integration from suppliers is minimal. These suppliers must follow the rules set forth by the automobile manufacturers. Vehicle brands such as BMW, Ford, Toyota, and Volkswagen wield enormous power because raw materials are always widely available, and switching from one supplier to another is simple for them. As a result, suppliers' bargaining power is significantly less.

Bargaining power of buyers: Moderately strong

Small individual buyers who purchase single vehicles account for a large portion of the buyers. Corporations and government agencies, on the other hand, purchase fleets of vehicles. These buyers have the ability to negotiate for lower prices. Buyers, whether large or small, can easily switch to a different brand. Switching to a different brand or mode of transportation does not incur any significant costs. The majority of buyers are price sensitive and would switch to a different brand if a better product is available at a lower price. Backward integration is not a threat to any of the buyers, whether they are large corporations or individual small businesses. Based upon the overall picture their bargaining power is moderately strong. In the grand scheme of things, their bargaining power is moderate. Customers' loyalty is built through design, quality, and competitive pricing, according to brands. The automobile industry has become more competitive, and changing consumer trends have increased customers' bargaining power.

Threat of substitutes: Strong

The automobile industry is filled with substitutes and switching cost of the customers is very low when choosing the substitutes. Companies regularly compete by introducing similar cars with lower prices. Thus, making the threat of substitutes very high

Competitive Rivalry in the industry: Very strong

The number of well-known and influential brands is small, and the barriers to exit are high. Any brand attempting to exit would have to accept significant losses. Customer loyalty is high, and the industry, despite its size, has matured. The competition for market share becomes even more intense as a result of this. Different brands, on the other hand, target different market segments, but they overlap. Price, design, quality, technology, customer safety, and a variety of other factors are all factors that brands compete on. Overall, the auto industry's competition is a powerful, if not overwhelming, force. To increase sales and customer base, auto manufacturers are investing heavily in R&D, digitization, marketing, and overall customer experience. The level of competitive rivalry among leading brands is fierce, whether in the premium category or in the small car segment and SUVs. With more competition, brands are attempting to increase customer satisfaction while competing to provide the best customer experience. They are also investing in growing their sales and distribution network as well as focus on after sales service is higher now. They are also investing in expanding their sales and distribution network, as well as a greater emphasis on after-sales service.