Introduction
The current instability in the automobile sector arises from an array of factors in the business environment ranging from competition to consumers’ bargaining potential. Porter’s Five-Force model is applicable to the automobile manufacturing sector. It is crucial to critically examine specific forces that have contributed to the unstable nature of the global automobile industry.
The Three Most Important Factors
The Five-Force framework assesses the profitability of businesses by considering the level of competition, the potential of new entrants, suppliers’ powers, consumers’ influence, and the threat posed by substitute commodities and services. The three important factors that seem to influence each of the above elements in the automobile industry include political interferences, economic changes, and environmental concerns. According to Potter (2017), governments rely considerably on the automobile sector and related stakeholders, including suppliers, because they make considerable contributions to taxation, employment, GDP, and balance of payments. Furthermore, Potter (2017) also underlines that changes in economic structures such as the case of Brexit have a significant impact on organisations’ profitability in the automotive industry since manufacturers, suppliers, and customers have to deal with uncertainty. According to Potter (2017), the issue of environmental sustainability also influences customers and manufacturers’ choices. This claim is founded on the awareness that automobiles contribute to pollution.
The Intensity of Each of the Forces
Each of the five forces poses a certain degree of intensity in the industry. Potter (2017) reveals that the intensity of competition in the industry is high because leading competitors, including VW and Toyota, rival each other. The potential of new entrants in the industry is medium due to the cost associated with the large-scale manufacture of automobiles. Potter (2017) points out that globalisation enhances the power of new entrants in the automotive industry as seen in the case of VW’s entry into the Chinese market, which has enabled the European automaker to sell at least 2 million units annually. Suppliers’ influence is medium in the automobile sector because manufacturers have resorted to diversifying and outsourcing activities in the wake of technological innovations. According to Potter (2017), buyers’ authority is high. In particular, Toyota and Hyundai failed to record remarkable sales from their hydrogen-driven cars. Moreover, the threat of substitutes in the automobile industry is low due to the convenience associated with owning a vehicle.
Implications for Profit-Making
The intensity of each of the five forces has a significant influence on the profitability of companies in the automobile industry. According to Potter (2017), highly competitive automakers in the industry, including Toyota, Honda, and Nissan, realise greater profits compared to their less competitive counterparts such as General Motors and Ford. The medium intensity associated with the potential of new entrants has a relatively low influence on profitability in the automobile sector because established companies such as Toyota have a considerable market share due to the technological and financial advantages they enjoy (Potter 2017). The medium intensity associated with suppliers implies their moderate influence on the productivity of automakers. As Potter (2017) uncovers, buyers can reduce the prices of automobiles. As a result, manufacturers should offer products that meet customers’ purchasing power in various market segments. Moreover, the low intensity related to the threat of substitutes has an insignificant influence on the level of profits realised in the automobile sector. Potter (2017) reveals the extent to which competition and buyers’ potential can influence the profitability of automakers in comparison to the intensity associated with other aspects of Porter’s five forces.
Conclusion
The automobile sector has experienced extensive instability in the recent past because of the dynamic nature of politics, business environments, and economic structures in various markets. These factors influence Porter’s five forces and, consequently, the profitability of automakers. Issues such as the high level of competition and the increasing power of customers in the automobile industry pose significant influence on profitability. Therefore, due to the instability experienced in the sector, automakers need to enhance their competitive strategies by ensuring that they meet the ever-changing needs and expectations of consumers.