Rivalry Among Competing Sellers
- The products of sellers are commodities and else weakly differentiated. US-based manufacturers have had to cut product lines they offer to cope with reduced demand and high costs (Hoovers, 2016). Also the costs to create more fuel efficient vehicles consumers want is high causing manufacturers to make similar cars. (Unfavorable/Strong)
- Competing sellers actively make fresh moves to improve their market standing and business performance. Detroit's big three, GM, Ford, and Fiat Chrysler, constantly compete by majorly investing in new technology idea and trying to be the newest and most exciting seller (Mergent, 2015). This is a fierce force and very unfavorable since great research and development spending is a must. (Unfavorable/Fierce)
- Rivals have diverse strategies. Manufacturers can build consumer confidence with extended warranties. Also companies have begun to offer extended service plans to cover vehicle repairs that occur even after the initial warranty is up (First Research, 2016). Consumers often make purchasing decisions based on brand loyalty and manufacturers must compete with long-term deals to win over customers. (Unfavorable/Strong)
- The number of roughly equal in size and capabilities rivals increased. US manufacturers have seen their shares of the domestic market dwindle as foreign competitors continue to move in and saturate the market (Hoovers, 2016). (Unfavorable/Strong)
Threat of Entry
- Existing industry members look to expand their market reach by entering geographic areas where they currently do not have a presence. Intense foreign competitors such as Honda, steadily and slowly have taken market share from domestic manufacturers (Hoovers, 2016). (Unfavorable/Strong)
- Very high entry barriers. The existence of economies of scale is the most significant entry barrier along with customers having existing brand preferences ("Investing in the automotive industry - what you need to know," 2015). (Favorable/Weak)
Substitute Products
- Good substitutes are not readily available or do not exist. The only other substitute product available to cars is public transportation which can be expensive overtime and not always reliable (First Research, 2016). (Favorable/Weak)
- New substitute products are emerging. New trends like car-sharing grant consumers transportation alternatives beyond the traditional models of car ownership or even public transportation (Hoovers, 2016). (Unfavorable/Weak)
Bargaining Power of Suppliers
- Suppliers sell critical products to the manufacturing of vehicles. Although there are a large number of suppliers, the contribution level they have to manufacturing a vehicle has significantly risen to about 82% ("Investing in the automotive industry - what you need to know," 2015). Apart from engines, most parts are produced by suppliers. (Unfavorable/Moderate)
- Industry members account for a big fraction of suppliers' total sales and continued high volume purchases are important to the well-being of suppliers. Many suppliers rely on just one or two automobile manufacturers for the purchase of the majority of their products ("US Auto Industry in 2013: Five Forces to Consider - Automotive Industries," 2013). (Favorable/Weak)
Bargaining Power of Buyers
- Quantity and quality of information available to buyers improves. Manufacturers are having to spend more on research and development to produce more and better environmentally friendly vehicles to satisfy consumer demand due to the "green" vehicle trend (First Research, 2016). (Unfavorable/Moderate)
- Buyers have the ability to postpone purchases until later if they do not like the present deals being offered. Consumers often delay buying new cars during times of job uncertainty. Also since most purchases are financed, buyer demand is sensitive to interest rate changes (Hoovers, 2016). (Unfavorable/Strong)