Post: Five Forces Model for Strategic Analysis of the Automobile Market

The Five Forces Model of Strategic Analysis of the Automobile Market brings together a large number of different factors in a simple model to analyze the basic competitive situation of an automobile market. It is derived from Porter’s Five Forces Model, which was proposed by Michael Porter in the early 1980s. The “five forces” refer to the existing competitiveness of the automobile industry, the bargaining power of suppliers, the bargaining power of customers, the threat of substitute products or services, and the threat of new entrants. The proposal of a feasible strategic model should first include the identification and evaluation of these five forces. The characteristics and importance of different forces vary from industry to industry and company to company. The core of corporate strategy lies in choosing the right industry and the most attractive competitive position in the industry.
Competition among existing automobile companies
The competitive force among existing automobile companies is the most powerful force faced by automobile companies. These competitors use various means (price, quality, styling, service, warranty, advertising, sales network, innovation, etc.) according to their own set of plans to occupy a favorable position in the market and compete for more consumers, which poses a great threat to the automobile industry. For companies that intend to enter the automotive industry, the first thing to do is to analyze the intensity of competition in the industry in order to assess the possible profit level under this intensity; this analysis helps determine the company’s position in the industry, predict competitors’ strategies and formulate corresponding strategies.
Bargaining power of suppliers
Suppliers may put pressure on companies in the automotive industry by raising prices or reducing the quality of the products or services they purchase. Supplier pressure can force the automotive industry to lose profits because it cannot keep prices up with cost increases. In some cases, suppliers have strong bargaining power, and companies can adopt different strategies to deal with different situations. For automotive companies, the company’s parts (supporting collaborative parts) suppliers are particularly important.
Bargaining power of customers
China’s automobile scale is getting bigger and bigger, and it has become the world’s largest automobile market. The Chinese automobile market is transforming into a buyer’s market. Like suppliers, buyers can also pose a threat to industry profitability. Buyers can force prices down, demand higher quality or more services. To achieve this, they may make producers compete with each other, or not buy goods from any single producer. Buyers can generally be classified as industrial customers or individual customers, and their purchasing behavior is generally irrelevant to this classification method. Industrial customers are retailers, which can influence consumers’ purchasing decisions, so that retailers’ bargaining power is significantly enhanced.
Threat of substitute products or services
Substitutes are products that have the same or similar functions as customer products. Substitutes are often the product of new technologies and new social needs. All industries face the threat of substitution, some of which are caused by economic factors; some factors are caused by shortages of raw materials; and some substitutions are the result of technological progress. From the perspective of effect, some are only short-term supplementary effects, while others may be permanent substitutions and lead to the decline of a certain industry, such as the impact of electric vehicles as substitutes for fuel engines on the automobile market.
Threat of new entrants
New entrants in the automotive industry usually bring a lot of resources and additional production capacity, and demand market share. In addition to the perfectly competitive market, new entrants in the industry may shake the entire automobile market. This is especially true when entering an industry step by step and purposefully. The severity of the threat of new entrants depends on the possibility and entry barriers of a new enterprise entering the automotive industry.