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Porter’s 5th Power in the Automotive Industry

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    Threats to New Entrants

    In the automotive manufacturing industry, this is often the lowest threat. Features to be considered for this threat include all entry barriers such as pre-financing requirements (too expensive to set up a car manufacturing facility!), Product Equity (a new company may not have it), law and government policy (consider safety, EPA and issuance), distribution capacity (Alfa Romeo has been out of the US since the early 90s mainly due to the failure to re-establish the retailer network.

    Consumer/customer Negotiation Capacity

    Who in the US has ever bought a car without negotiating? Anyone? In 2009 in particular, U.S. retailers offered consumers great deals to make the industry go. Although the size of the consumer purchase is often a good factor in determining the force, or in the automotive industry where buyers often buy one car at a time, they still have great potential. However, this may differ from other markets. Singapore is definitely lower than the US, which creates favorable conditions in the industry but not consumers. In general, it is safe to say that customers have some purchasing power, but it always depends on the market.

    The Threat of Replacement Products

    If consumers look at a competition or other comparable products and change easily (they have a lower cost of replacement) there could be a serious threat to this force. In new cars, replacement costs are higher because you can’t sell a brand new car at a price you paid for it. Porter’s 5 forces analysis in the automotive industry includes a new, unused market or second-hand market.

    Number of Negotiating Power Providers Available

    In the automotive industry, this applies to all suppliers of parts, tires, appliances, electronics, and even assembly workers. As we know that car union has great power. But we also know that some suppliers of small firms rely on car manufacturers, and may have one car manufacturer as a client. So this power can be deceptive to explore.

    The Intensity of the Competitive Rivalry

    We know that in many countries all carmakers make a strong competition. The falling prices of Tit-for-tat, advertising campaigns, and product development keep them on the verge of creativity and profitability. The genes are low and the pressure between competitors is high. Manufacturers of government vehicles such as Proton in Malaysia are facing less controversy but are still under pressure from other countries.

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