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Automotive Industry in the USA Essay


Introduction

The USA is one of the modern most powerful states the prosperity and rise of which are conditioned by the efficient functioning of various branches of industry. The country holds leading positions in different spheres and devotes great attention to the evolution of its economy. All industries are important for the states rise as they contribute to increased incomes and promote further US growth. However, there are still industrial sectors that should be considered extremely significant and even crucial for the evolution of the US and the automotive industry is one of them. The United States is one of the greatest manufacturers of vehicles, and its cars are appreciated and used in all regions of the world. Traditionally, they are associated with high quality, power, speed, reliability, and other positive qualities. However, the 2008 financial crisis undermined the functioning of this industry and introduced numerous problems it had to overcome. It was provided with governmental support, and a specific crisis intervention was approved. Thus, it is vital to understand whether these measures were successful or not to determine the perspectives of the automotive industry.

Industry Profile

To start with, the United States has one of the largest markets in the world, and it is a place where many global manufacturers have their plants (The automotive industry in the United States, n.d.). Yet, the rise of the industry started in the 1890s, and soon it became the greatest in the world. Currently, it manufactures 8-10 million vehicles per year and is overtaken only by China (The automotive industry in the United States, n.d.). Such companies like Fiat Chrysler, Honda, Toyota, Nissan, Hyundai, Kia, BMW, Mercedes-Benz, Mazda, Mitsubishi, Subaru, Volkswagen have their plants here and consider the American market promising. In 2015 the USA earned $65 billion by selling vehicles and an additional $81 billion by exporting automotive parts (Automotive industry: Employment, earnings, and hours, n.d.). The budget of the state depends on these funds greatly, and this fact preconditions great attention devoted to this industry and provision of the governmental support.

However, the financial crisis of 2008 had a great impact on the US automotive industry. GM and Chrysler, the greatest American manufacturers, exited bankruptcy because of the decrease in the demand for vehicles and the low paying capacity of buyers. This fact was taken as a great threat to the Detroit Three (GM, Ford, Chrysler) which provided giant incomes for the budget. Therefore, the problems of these companies could not but impact the whole automotive industry and condition their decline. These facts also attracted the governments attention as it had to respond and create an efficient solution to this problem. The US economy suffered from the aftermath of the financial crisis and was not able to recover fast. For this reason, a certain set of actions needed to guarantee recovery of the industry and its further rise was accepted and implemented.

Therefore, the Big Three invested in facilities more than $30 billion in domestic investments (Automotive industry: Employment, earnings, and hours, n.d.). Moreover, international manufacturers were also provided with assistance totaling $52 billion, and it was given to provide support to the US-based production facilities (The automotive industry in the United States, n.d.). In its turn, this step also resulted in the appearance of 97000 vacancies for Americans (The automotive industry in the United States, n.d.). Several other practices helped the industry to recover and obtain incomes. Additionally, the open investment policy peculiar to the given sphere contributed to the attraction of new actors who wanted to invest in the sphere and obtain some extra benefits. The government of the USA stated the gradual improvement of the situation in the automotive industry and admitted the possibility of total recovery and becoming prosperous.

Due to the above-mentioned course of action, at the moment the industry passes through the stage of its rapid growth. In 2015 the USA exported about 2.6 million vehicles to more than 200 countries around the world (The automotive industry in the United States, n.d.). Moreover, it reached 17.4 million units in 2015 which is considered the highest peak for it (The automotive industry in the United States, n.d.). Numerous investigations of the sphere admit that there is the perspective for the further rise of the sector and it’s becoming one of the leading industries in the world (Automotive industry: Employment, earnings, and hours, n.d.). The Big Three managed to survive and continue its growth and evolution. GM, Ford, Chrysler still play leading roles in the international markets as vehicles manufactured by these companies are popular with people. Finally, the government still monitors the situation in the sphere as it remains extremely important for the functioning of the state, its budget, and further rise.

Industry Structure

The current US automotive industry structure contributes to its great efficiency and success. At the moment, it is at the forefront of innovations implementing numerous technologies and transforming the industry for it to be able to face the majority of challenges that might appear in the 21st century. It spends about $100 billion per year on the creation of new approaches and usage of technologies (Automotive industry: Employment, earnings, and hours, n.d.). Moreover, the sphere is characterized by the large and diverse consumer market which introduces numerous opportunities for the further rise. Combined with open investment policy and government incentives, the state becomes beneficial for the evolution of the given sector. Moreover, the US automotive industry could also use a highly-skilled workforce that is available for it as numerous educational establishments prepare specialists needed to guarantee the functioning of the given sphere. Finally, a unique infrastructure also preconditions the further sectors rise.

Future Outlook

When speaking about the perspectives awaiting the given industry, numerous specialists give similar forecasts (Automotive industry: Employment, earnings, and hours, n.d.). The combination of all the above-mentioned aspects contributes to the creation of a beneficial environment that promotes the further rise of the sphere and its holding leading positions in the world. Additionally, in case the demand for vehicles manufactured in the USA increases, the leading manufacturers will obtain extra incomes which, in turn, will guarantee the further rise of the industry. Therefore, numerous investors attracted by the significant improvement of the situation also precondition the further rise of the sector. They might devote significant sums to become shareholders and obtain revenues. However, there is also a certain threat that is posed by the lack of stability in the world and oscillations of the buying capacity of the main customers. That is why the further investigation of the situation in the sphere is crucial to create the needed response in case it is needed.

Porter’s Five Forces Strategy Analysis as it applies to the Auto Industry

Resting on the above-mentioned information, one should understand the great impact the automotive sector has on the functioning and further evolution of the state. Being one of the main sources of income provides finances needed for numerous social programs or other initiatives. That is why the comprehensive investigation of even the slightest alterations of the state of this sector is extremely important. Besides, numerous tools should be explored to collect the needed information and process it to obtain results that might describe the current stage of the evolution of the industry and outline perspectives. Porter’s Five Forces model could also be considered one of the efficient tools which might help to improve the comprehending of the processes peculiar to the automotive industry and understand whether some alterations are needed or not.

Bargaining Power of Buyers

The bargaining power of buyers is the first aspect of this model. It could be defined as the pressure customers might exert on the manufacturers of vehicles to make them provide high-quality products that might satisfy the basic peoples needs. Analyzing the industry, it is possible to admit the great bargaining power of buyers. It is preconditioned by several aspects. First of all, it comes from a great dependence on the customers interest. Being the main contributors to the evolution of the sector, their investments guarantee their further rise. That is why every vehicle is designed to satisfy their demands and assure that people will buy it. This pattern preconditions the great bargaining power of buyers and their significant impact on the way industry evolves. Additionally, it also results in the necessity to monitor the peculiarities of the demand and customers tastes.

Bargaining Power of Suppliers

Therefore, the bargaining power of suppliers is another important aspect. It is defined as the presence of powerful suppliers that might dictate their conditions, or alter the terms of cooperation by raising prices or introducing new demands. Analyzing the US automotive industry, it is possible to state that the bargaining power of suppliers is much lower than those of buyers. The fact is that the majority of American car manufacturers adhere to the model that does not presuppose the existence of numerous and powerful suppliers. The most important parts of any vehicle are produced by these companies, and this pattern makes them more independent (Automotive industry: Employment, earnings, and hours, n.d.). Additionally, the low bargaining power of suppliers increases the profit potential of the industry and contributes to the appearance of new actors who want to act in this sphere and obtain incomes.

The threat of New Entrants

Thus, the threat of new entrants, which is another important point of the analysis, remains not very high. The fact is that at the moment the vehicle market in the USA is occupied by several companies which are characterized by a long history. These are reputable brands with their customers and target audience. These companies provide people with high-quality products that are focused on the satisfaction of the buyers basic needs. For these reasons, the probability of the appearance of a new company acting in this sphere is low. The creation of a new car brand is a complex process that demands specific facilities and investments. Moreover, to become efficient, it needs a certain target audience. Thus, the Big Three and other companies will hardly share their customers and ignore the new market entry. Resting on these facts, the threat of new entrants remains insignificant.

Competitive Rivalry in the Industry

However, competitive rivalry in the industry is extremely high. The existence of numerous companies that manufacture vehicles results in the necessity of specific actions that are needed to guarantee a companys survival and its further rise. Besides, numerous aspects are given specific attention by famous brands and different market segments that are occupied by them. For this reason, the high level of rivalry might be considered one of the main distinctive features of the US automotive industry and one of the factors that precondition its further rise. To obtain a competitive advantage, a company has to introduce either a new product or a new approach. In its turn, this practice also guarantees the constant alteration of this sector and its gradual development.

Threat of Substitutes

Finally, the threat of substitutes could be described as high. The fact is that great international corporations like Volkswagen, Volvo, Toyota, and others also try to conquer the American market. For this reason, customers have a wide choice. They might decide to replace their American car with the European one at any moment. In this regard, the US companies working in the given sphere have to do their best to guarantee the unique quality of their cars and contribute to customers satisfaction. The great threat of substitutes also results in the existence of unique patterns used by American vehicle manufacturers (The automotive industry in the United States. (n.d.).

Conclusion

Altogether, the automotive industry of the USA takes second place in the world. It produces about 10 million vehicles per year and earns approximately $65 billion. This sector suffered from the world financial crisis; however, it managed to overcome its negative aftermath. Exploration of the Potters Five Forces model shows that it has good perspectives and could be considered promising. The industry attracts numerous investors and continues its rapid evolution.

References

(n.d.). Web.

(n.d.). Web.

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IvyPanda. (2020, September 13). Automotive Industry in the USA. Retrieved from https://ivypanda.com/essays/automotive-industry-in-the-usa/

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"Automotive Industry in the USA." IvyPanda, 13 Sept. 2020, ivypanda.com/essays/automotive-industry-in-the-usa/.

1. IvyPanda. "Automotive Industry in the USA." September 13, 2020. https://ivypanda.com/essays/automotive-industry-in-the-usa/.


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IvyPanda. "Automotive Industry in the USA." September 13, 2020. https://ivypanda.com/essays/automotive-industry-in-the-usa/.

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IvyPanda. 2020. "Automotive Industry in the USA." September 13, 2020. https://ivypanda.com/essays/automotive-industry-in-the-usa/.

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IvyPanda. (2020) 'Automotive Industry in the USA'. 13 September.

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