American Car Market

Porter's 5 Forces: U.S. Automotive Industry

Potential New Entries (LOW)

It is hard for foreign competitors to enter the U.S. Automotive Market. Current outside players in the U.S. market such as Toyota, Honda and Nissan (Dotson) only gained acceptance from decades of learning and adopting. Other outside brands such as Peugeot and Citron have been discontinued. While opportunities for new entries are low, foreign companies still want a share of the U.S. market. The reason is American is the largest passenger vehicle market in the word. China's Geely and Chery are due to enter the U.S. in late 2008. Geely is already in Puerto Rico. However these two new brands are finding it hard to establish a proper support network for their cars.

Bargaining Power of Buyers (HIGH)

The U.S. auto market has many competitors. These range from GM brands, Ford brands, Honda, Toyota, Hyundai, Chrysler, and BMW to Mercedes Benz. The buyer power in this market is very high. Many Auto makers engage in deals such as Zero down, money back etc. American car manufacturers currently sell cars at a loss.

Bargaining Power of Supplier(LOW)

American Auto makers have been known to squeeze their parts suppliers. In November 2003 the Wall Street Journal details how American Auto makers GM and Ford are squeezing their supplier. It suggests that U.S. Auto makers want some parts to equal the same prices as those of Chinese parts makers. Supplier power in this industry is very low. Some American auto parts makers have dropped out of contracts with Auto makers because there simply is not enough of a profit.

Threat of Substitute Market (LOW)

While substitutes such as Motorbikes, Scooters exist they cannot replace an automobile. No one who really wants a car would buy a Scooter. A Scooter can get you from point A to B, but it cannot replace the car. Similarly Trains and Planes can also satisfy the same functions as automobiles but these are used mainly for along distance travels.

Rivalry among Competitors (HIGH)

Rivalry in this Industry is high. Toyota, Honda, Ford, General Motors and Chrysler are all fighting for the same customer. They all make automobiles in each class. An automobile is a high involvement purchase. The customer only has so much money to spend. American auto makers have begun to sell some models at a loss, just so they can keep market share and get rid of excess inventory. Currently (last Quarter), only Honda reported to have positive sales growth in the industry. All other auto makers are suffering due to the current recession.

Relatively speaking the U.S. Automotive market is NOT a good market to enter. The main players are already well established and even most of them sell their cars at a loss.