1. Bargaining Power of Suppliers: The differentiation of suppliers in the automotive industry is very low because the suppliers are all virtually the same in terms of products and pricing, decreasing their power. Switching costs are low because it’s easy to switch around suppliers, which also decreases their power. There is also a large amount of supplier firms in the automotive industry, providing multiple options to choose from if any one supplier is dissatisfactory. This decreases their power. However there are little to no options for substitute resources because vehicles require specific inputs to operate. This increases the power of suppliers. Overall, the bargaining power of suppliers is low in the automotive industry. Suppliers don’t have a lot of say in what they sell, how they sell it, and how much they charge.
2. Bargaining Power of Buyers: The saturated automotive industry features a large number of competitors, which decreases switching costs. This increases the power of buyers. It is also difficult to integrate backwards. The costs would be monumental with no guarantee of a significant improvement in efficiency. This also increases buyer power. Brand identity can provide very dominant competitive advantages in the automotive industry. Consumers will often stay loyal to one brand (if they have an enjoyable experience), and this ultimately decreases the power of buyers. Overall, the bargaining power of buyers is high in the automotive industry. With an abundance of options to choose from and the individuality associated with cars, buyers have a lot of say in this industry.
3. Threat of Substitutes: trains, bikes, busses and cabs are very accessible and affordable in urban areas making the threat high. However, owning a vehicle has become the norm in today’s society, especially in suburbia or less urban areas. On average, most homes will own at least one automobile causing them to become considered a commodity rather than a luxury item. Overall, the threat of substitutes is moderate.
4. Threat of New Entrants: breaking into the automotive industry would require a substantial amount of capital to finance the startup costs. However, the resources are relatively easy to gain access to and distribute and regulations are not severely restrictive. However, the dominance of bigger names in the automotive industry keeps the threat low. Overall, the threat is low.
5. Intensity of Rivalry: Growth in the automotive industry is extremely high. Automobiles are becoming less of a luxury and more of a commodity. This increasing demand creates a lot of opportunities. The accelerated growth rate decreases the intensity of rivalry. Fixed costs are very high in this industry, which increases rivalry, as there is a need to make more sells in order to make a profit. Product differentiation in the automotive industry is currently low. So far the qualities that set one automobile apart from another are factors but not always significant to consumers. While automobiles are starting to see more and more differentiation, the pertinent features a consumer requires are more or less the same in every firm. Low product differentiation increases rivalry. Switching costs are low for consumers. It is not difficult to pick another automobile brand if one does not meet your expectations. This increases rivalry as well. Overall, the intensity of rivalry is high in the automotive industry. All the competing firms are constantly finding ways to stay profitable, whether by differentiating their product or minimizing the price. The automotive industry is very dynamic and building a large, loyal consumer base is essential to success.
Shelby's Capstone 