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Porter's Five Forces Analysis of the American Automotive Industry: Assessing Strategic Position
and Future Outlook
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Author Note
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Abstract
The automotive industry of the United States of America has undergone a thorough and
comprehensive analysis utilising the highly sophisticated and intricate framework of Porter's
Five Forces, with the express purpose of evaluating its strategic positioning and prospective
trajectory. This paper assesses various studies to furnish a highly nuanced and sophisticated
viewpoint on the trajectory of the industry and delves into the intricacies of the industrial supply
chain, with a laser-sharp focus on the nuanced and multifaceted dynamics of aluminium and steel
flows, and the manifold regional variations that they entail. The discourse in question therefore
delves into the intricacies of the challenges and opportunities that confront industry players
during periods of transition, with a particular emphasis on the paramount significance of market
equilibrium and pricing dynamics. The study delves into the intricate evolution of market power
and its far-reaching implications for the competitiveness of industries across temporal horizons,
underscoring the importance of vigilantly tracking fluctuations in market concentration. The
analysis also goes deeper into the industry's delineation, historical background, market
configuration, and future outlook. Lastly, this paper undertakes a rigorous application of Porter's
Five Forces framework to meticulously assess the industry under scrutiny, astutely delving into
the intricate dynamics of the bargaining power wielded by both buyers and suppliers, the intense
competitive rivalry that characterises the market, as well as the looming spectres of the threat of
new entrants and the threat of substitutes. In totality, the automotive industry of the United States
of America proffers a supremely cutthroat terrain distinguished by convoluted power dynamics a
highly competitive environment
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Porter's Five Forces Analysis of the American Automotive Industry: Assessing Strategic Position
and Future Outlook
1.0 Introduction to the Auto Industry
Researchers have paid close attention to the American car industry, utilising tools like
Porter's Five Forces Analysis in the examination of the sector's current strategic position and
predicted growth. Hua, Kelly, Lewis, and Keoleian's (2022) regional study illuminated the
intricacies of aluminium and steel flows throughout the industry's supply chain, highlighting the
need of recognising regional variances and their possible influence on cost structure and
competitiveness. A thorough analysis of the American and Japanese car sectors in transition was
done by Cole and Yakushiji (2020), yielding insights into the problems and possibilities
encountered by industry actors and the strategic choices made in response. Examining
automotive prices within market forces, Berry, Levinsohn, and Pakes (1995) added to our
knowledge of market equilibrium and pricing dynamics by highlighting the dynamic interaction
of supply, demand, and pricing tactics. To learn more about market concentration and how it
affects industry competitiveness over time, you may read Grieco, Murry, and Yurukoglu's (2022)
working paper on the subject of market power in the US automotive sector. The research shows
the need of tracking changes in market power as a primary factor in determining future strategic
positioning by analysing industry structure and corporate behaviours. The purpose of this study
is to provide a nuanced evaluation of the American automobile industry's trajectory by relying on
these in-depth evaluations of its current state and projected future state.
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1.1 Industry Definition
To conduct a thorough analysis, it is crucial to have a clear understanding of the
American automotive industry and its breadth. As per the erudite experts in the field, the
American automotive industry comprehensively encompasses all the multifarious activities that
pertain to the conception, evolution, fabrication, and commercialization of motor vehicles,
spanning across a diverse range of categories such as passenger cars, light trucks, and
commercial vehicles (Hua et al., 2022). The comprehensive delineation encompasses both local
and international producers functioning within the boundaries of the United States and
accentuates the intricate and diverse character of the industry.
By drawing upon the astute observations of Hua et al. (2022), it becomes patently clear
that the American automotive sector is intricately interwoven and heavily dependent on intricate
supply chains that encompass a diverse array of materials, including but not limited to
aluminium and steel. The aforementioned inputs are of utmost importance in the manufacturing
of automobiles and wield a pivotal influence in moulding the dynamics of the industry.
Henceforth, any scrutiny of the American automotive sector necessitates a thorough examination
of the intricate dynamics between the industry's stakeholders and the resources they utilise.
1.2 Industry Profile
In order to attain a thorough comprehension of the American automotive sector, it is
imperative to delve into its profile, encompassing its historical antecedents, key stakeholders,
and market magnitude. The annals of the American automotive industry are replete with a storied
past that harks back to the dawn of the 20th century, marked by the ascendancy of legendary
marques such as Ford, General Motors, and Chrysler (Cole & Yakushiji, 2020). The triumvirate
of corporations, commonly known as the "Big Three," have exerted a significant influence on the
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direction of the sector, the progress of technological innovations, and the fluctuations of the
market.
As per the findings of Berry et al. (1995), the automotive sector in the United States has
undergone noteworthy phases of expansion and metamorphosis. Throughout its history, the
automotive industry has exemplified remarkable resilience and adaptability, from the pioneering
mass production techniques of Henry Ford to the formidable challenges posed by economic
downturns, such as the 2008 financial crisis. Throughout the years, foreign automotive
manufacturers such as Toyota, Honda, and BMW have successfully established a formidable
foothold within the American market, thereby heightening the level of competition and
broadening the spectrum of options available to consumers.
The American automotive industry holds a significant position in the nation's economy
owing to its substantial market size. According to Grieco and colleagues (2022), the industry is a
major contributor to the economy, generating substantial revenue and offering gainful
employment to millions of people. Furthermore, the influence of the industry transcends the
realm of mere production, as it bolsters a diverse array of supplementary services such as
dealerships, repair facilities, and post-purchase sales.
1.3 Industry Market Structure
Conducting an in-depth examination of the market structure of the American automotive
industry is of paramount importance in order to evaluate its strategic stance and prospective
trajectory. According to Chen and Miller (2015), the market structure of the industry is a
constantly evolving entity that is subject to a range of factors, including but not limited to the
quantity and magnitude of competitors, the degree of market concentration, and the dynamics
that are inherent to the industry. Historically, the American automobile sector has been
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distinguished by a limited number of influential contenders, specifically the Big Three. The
advent of foreign automakers and the rise of electric vehicles have brought forth novel facets to
the configuration of the automotive sector.
The study conducted by Grieco and colleagues in 2022 offers valuable insights into the
dynamic evolution of market power within the automobile industry of the United States. The
research underscores the evolving intricacies of rivalry, as there is a transition from a
consolidated marketplace to a more dispersed terrain. The metamorphosis at hand has been
instigated by the influx of fresh contenders and the assimilation of cutting-edge technologies.
Furthermore, the research underscores the pivotal function of mergers and acquisitions in
moulding the market configuration of the industry and accentuates the strategic ramifications of
said transactions.
1.4 Future Outlook
Analysing the prevailing patterns and prospective advancements is imperative to evaluate
the forthcoming prospects of the American automobile sector. The sector is currently
experiencing a substantial metamorphosis, propelled by cutting-edge technological
breakthroughs, evolving consumer predilections, and ecological concerns. The significance of
modularity and external innovation sources in the industry, specifically in the realm of electric
vehicles and autonomous driving technologies, is underscored by Cabigiosu et al. (2013).
The scholarly work of Shaheen and Cohen (2013) illuminates the burgeoning phenomenon
of carsharing and personalised vehicle services, drawing attention to their potential to disrupt the
conventional paradigm of vehicle ownership. The advent of this development presents a dualedged sword for the American automotive sector, mandating nimbleness and visionary tactics
from its stakeholders.
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Un-Noor and colleagues (2017) present an all-encompassing investigation into the
fundamental components, technologies, obstacles, ramifications, and prospective trajectories of
development pertaining to electric vehicles. This study highlights the burgeoning significance of
electric vehicles within the industry and posits that their extensive integration could potentially
reconfigure the competitive terrain in the foreseeable future.
Ultimately, this comprehensive examination of the American automotive industry has
delved into a multitude of facets, ranging from its conceptualization and historical evolution to
its market composition and prospective trajectory. Upon synthesising insights from authoritative
sources, it becomes apparent that the industry is distinguished by its intricate nature, robustness,
and capacity for metamorphosis. The dynamic interaction between entrenched industry leaders
and burgeoning developments, such as the proliferation of electric vehicles and the rise of
collaborative transportation, will exert a profound influence on the strategic posture and longterm outlook of the American automotive sector.
2.0 Porter's Five Forces Strategy Analysis as it applies to the Auto Industry
The automotive domain within the confines of the United States is a highly competitive and
fiercely contested industry, characterised by a plethora of players, a ruthless and
uncompromising competitive landscape, and an incessant drive towards innovation. The
quintessential Porter's Five Forces framework provides a comprehensive and exhaustive
assessment of the multifaceted intricacies of the industry, meticulously scrutinising the
bargaining power exuded by both buyers and suppliers, the magnitude of competitive rivalry, and
the plausible perils posed by novel entrants and substitutes (Porter, 1979). The fundamental aim
of this literary scrutiny is to undertake a meticulous examination of the multifarious factors that
wield their sway on the automotive sector in the United States. The present critique endeavours
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to thoroughly scrutinise each of these formidable forces and meticulously evaluate their
consequential impact on the industry.
2.1 Bargaining Power of Buyers
The potential for buyers to exert their bargaining power within the automotive industry is
contingent upon a multitude of factors, encompassing but not restricted to their susceptibility to
price fluctuations, the degree of product differentiation, and the expenses incurred when
transitioning between brands. Within the United States automotive sector, consumers commonly
demonstrate a marked inclination towards price sensitivity, as they diligently strive to procure the
most advantageous value proposition for their hard-earned financial resources. Moreover, the
inception of the cyberspace has endowed purchasers with an augmented level of erudition and
supremacy, empowering them to carry out scrupulous juxtapositions of prices and functionalities
amidst various brands.
As per the findings of Busse, Knittel, and Zettelmeyer (2013), it has been observed that
customers tend to display a myopic outlook while making automobile purchases, wherein they
tend to prioritise short-term expenses over the long-term advantages. The aforementioned
conduct endows purchasers with considerable leverage when it comes to haggling over prices
and inducements with producers. Furthermore, the automotive sector's exceptional degree of
product differentiation empowers consumers to select from a vast array of alternatives, thereby
augmenting their capacity to negotiate.
It is imperative to take into account the ramifications of switching costs on the purchasing
influence wielded by buyers. Potential clients might exhibit reluctance in changing their
preferred brand owing to the monetary ramifications linked with the sale or exchange of their
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extant automobile. This particular aspect has the potential to curtail the leverage of the purchaser
to a certain degree, given that it engenders a sense of level of lock-in and loyalty.
2.2 Bargaining Power of Suppliers
The pivotal role that the bargaining power of suppliers plays in shaping the automotive
industry cannot be overstated. Suppliers wield a significant degree of influence and leverage over
firms, exerting their impact on critical aspects such as the availability of resources, input costs,
and the concentration of suppliers. Within the realm of the United States automotive sector,
suppliers encompass entities that furnish fundamental materials, intricate components, and
cutting-edge technological contributions.
The degree of supplier concentration plays a pivotal role in ascertaining their ability to
negotiate favourable terms. In cases where suppliers exhibit a high degree of concentration, they
wield greater influence over pricing and contractual stipulations, thereby resulting in escalated
expenses for manufacturers. Furthermore, the accessibility of resources and inputs can have a
significant impact on both the expense and calibre of automobiles manufactured.
The EV sector stands as a prime illustration of the influence wielded by suppliers.
According to Sun, Liu, Wang, and Yuan (2019), the provision of public subsidies can exert a
significant influence on the growth and progress of nascent industries such as electric vehicles.
The provision of subsidies and incentives by the government can exert a significant impact on
the accessibility and pricing of pivotal components for electric vehicle manufacturers, thereby
influencing their competitive edge and leverage.
In order to counterbalance the bargaining power wielded by suppliers, certain
manufacturers elect to pursue backward integration by either establishing their own supply
chains or forging strategic partnerships. By implementing this particular approach, the company
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can effectively diminish its reliance on third-party providers while simultaneously bolstering its
authority over expenses and standards.
2.3 Competitive Rivalry in the Industry
The level of competitive rivalry among current players within the automotive sector is
exceedingly high. The degree of competition within an industry is influenced by market share,
product differentiation, and competitive strategies, as posited by Porter in 1980. The market is
currently dominated by well-established brands such as Ford, General Motors, and Toyota, which
poses a significant challenge for new entrants seeking to establish themselves.
The measure of market share holds significant importance as it serves as a crucial
indicator of the level of competition among rivals. According to Bergek, Berggren, Magnusson,
and Hobday (2013), established companies endeavour to uphold their market supremacy,
resulting in assertive marketing and competitive tactics. The existence of this rivalry engenders a
perpetual impetus to innovate and distinguish products in order to secure a coveted competitive
advantage, as posited by Porter in 1985.
The differentiation of products is a crucial factor in the context of competitive rivalry.
Automotive manufacturers allocate significant resources towards research and development
endeavours, with the aim of conceiving distinctive features and cutting-edge technologies that set
their vehicles apart from rival brands. Tesla's revolutionary electric vehicles and their state-ofthe-art technology have caused a major upheaval in the conventional automotive industry.
The implementation of competitive tactics, such as pricing, advertising, and customer
service, serves to intensify the already existing level of rivalry among businesses. Tanwar (2013)
underscores Porter's generic competitive strategies, namely cost leadership, differentiation, and
focus, as effective means for firms to strategically position themselves in the market.
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Notwithstanding, engaging in price wars and implementing assertive marketing strategies may
undermine the profitability of all parties concerned.
2.4 Threat of New Entrants
The automotive industry in the United States is endowed with substantial barriers to
entry, thereby rendering the likelihood of new entrants to the market relatively low. Obstacles
that impede the entry of new players into a market comprise of factors such as the advantages
gained from producing at a large scale, the steadfast allegiance of consumers to established
brands, the need for substantial financial resources, and the regulatory framework set by the
government.
The auto industry heavily relies on economies of scale, as the ability to produce at a large
scale provides significant cost benefits and streamlined operations. Well-established
manufacturers enjoy the advantage of economies of scale, which poses a formidable challenge
for new players seeking to compete on the basis of cost. Furthermore, the automotive sector
boasts a robust brand allegiance, as patrons frequently showcase a predilection for reputable
labels and well-established producers.
The exigency of meeting capital requirements poses yet another obstacle for aspiring
entrants. The endeavour of constructing a manufacturing facility and setting up a distribution
network demands a significant amount of financial capital. The substantial financial
commitments required act as a deterrent for numerous prospective participants, thereby
restricting the possibility of fresh rivalry.
The imposition of governmental regulations, particularly in domains such as safety and
emissions standards, presents supplementary obstacles to the initiation of a business venture.
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Adhering to these regulations entails substantial expenses and rigorous testing, rendering it
arduous for fresh contenders to satisfy the regulatory prerequisites.
2.5 Threat of Substitutes
The auto industry must take into account the substantial influence that alternative
products or services may have on the demand for automobiles. The degree of substitution threat
is shaped by various factors, including but not limited to the trade-offs between price and
performance, as well as the discerning tastes and preferences of customers.
Diverse means of transportation, such as communal transit, cycling, and ride-hailing
amenities, have the potential to serve as replacements for individual automobile possession. The
advent of novel mobility alternatives, such as self-driving cars and electric scooters, serves to
broaden the spectrum of options at the disposal of consumers.
The interplay between price and performance is a pivotal factor in assessing the
desirability of alternative options. Electric automobiles, exemplifying a prime instance, proffer a
more eco-friendly and enduring substitute to conventional vehicles powered by internal
combustion engines. Notwithstanding, the augmented expenditure and restricted accessibility of
charging stations may dissuade certain clientele, thereby mitigating the menace of replacement.
The menace of substitutes is also influenced by the inclinations of the clientele. The
adoption of alternative modes of transportation can be influenced by shifts in societal attitudes
towards environmental sustainability and the pursuit of convenience. The burgeoning ubiquity of
ride-sharing platforms such as Uber and Lyft serves as a testament to the profound influence of
evolving consumer predilections on the automotive sector.
3.0 Conclusion
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Upon subjecting the American automotive industry to a rigorous analysis utilising
Porter's Five Forces framework, a remarkably cutthroat environment is revealed, capturing the
interest of industry experts. The automotive industry's established behemoths, including Ford,
General Motors, and Toyota, engage in a cutthroat competition to maintain their market
dominance, employing strategies characterised by unwavering marketing initiatives and an
unrelenting drive for innovation. Purchasers, possessing a keen awareness of subtle variations in
pricing and a plethora of options to choose from, wield significant sway, making them
formidable bargaining agents. However, one cannot deny that the limitations imposed by the
costs associated with switching, which bind consumers to their favoured brands, imbue a certain
level of allegiance that mitigates their influence. The elaborate interplay between suppliers and
industry stakeholders, marked by complex power dynamics, assumes a pivotal position in
shaping the trajectory of the industry. The capacity of suppliers to furnish pivotal inputs,
spanning from fundamental raw materials to cutting-edge technological components, holds
significant sway, with their level of consolidation serving as a determining factor in their impact.
Moreover, the perturbing impact of governmental regulations looms large over prospective
newcomers, as the formidable obstacles of steep capital demands and stringent adherence criteria
pose formidable challenges to surmount. As alternative means of transportation emerge as
potential competitors, consumers with a discerning eye are drawn towards them, enticed by the
convenience of ride-sharing services and the environmentally conscious solutions they offer.
Within the complex interplay of economic factors, the American automotive sector emerges as a
dynamic arena of rivalry, offering a crucible for shrewd tacticians seeking to navigate its
constantly shifting terrain.
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