FIVE FORCES ANALYSIS AND UK AUTOMOBILE INDUSTRY

0808626
RGU UK

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Contents: Pages

• Executive Summary: .......................................................................................... 3

• Industry Analysis: .............................................................................................. 3
• 5-Forces Model and UK Automobile Industry ................................................ 4
• Potential Entrants: ............................................................................................. 4
• Supplier Power: .................................................................................................. 4
• Buyer Power: ...................................................................................................... 5
• Substitutes: .......................................................................................................... 5
• Internal Rivalry: ................................................................................................. 5
• Conclusion 5-Forces Model: .............................................................................. 6
• The Demand for Strategic Choice: ................................................................... 6
• Specific Examples: ............................................................................................. 7
• References: .......................................................................................................... 7

Executive Summary:

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Porter’s Five Forces Model identifies five principal forces that determine industry competition.
These forces are the threat of new entrants, the threat of substitution, the bargaining power of
buyers, the bargaining power of suppliers, and the rivalry amongst existing competition in the
industry. The paper examines each of these forces in detail and discusses the methods for
assessing the strength of each force. An example to illustrate the utility of the model for suitably
positioning the firm, amidst competition, is also illustrated

Industry Analysis:

Before going to analysis the 5 forces model for UK Automobile industry it is important to
identify the boundaries and recognise industry limits because different countries having different
external environment factors which determinates its boundaries and limits like “Capital Markets”
domestic capital markets affect the strategy of firms. Some countries’ capital markets have a
long-run outlook, while others have a short-run outlook. Industries vary in how long the long-run
is. Countries with a short-run outlook will tend to be more competitive in industries where
investment is short-term. Countries with a long run outlook will tend to be more competitive in
industries where investment is long term. Government’s policies also affect Limits and
boundaries such as directly and indirectly subsidies the firms, implementation of tax to
corporate, business and property ownership.
In addition, PESTE analysis gives more ideas for industry to focus more on selecting the
appropriate market and segments. Through analyzing political factors, company can get idea
about the political stability and government regulations about taxes and tariffs. However, to get
long-term profit company has to make good relationship with governments. Economical factors
are more related with automobile industry because of consumers' purchasing power and per
capital income in particular country related with demand and supply. Moreover, the social
factors influence consumers buying behaviour and lifestyle. Technological factors are the major
factors for this industry as it is highly depending on innovative technology and knowledge-based.
Technological changes have contributed much more on industry's growth.
http://www.loc.gov/rr/business/BERA/issue2/industry.html

5-Forces Model and UK Automobile Industry

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Potential Entrants:
It is very difficult for new firm to enter in automobile industry. An entrant has to spend big
amount on safety, motor management, comfort, design and numerous electronic functions. Car
industry focused on brand loyalty, and this is an advantage of existing auto firms in the auto
industry, because business have invested more to win a customer than keep him like Ford,
Toyota, Honda.

Supplier Power:
There are different kinds of suppliers in auto industry. There are suppliers for braking system,
classic and frame, cooling system, electrical system and engine, exhaust and fuel supply system.
However the most important suppliers are steel suppliers and the biggest suppliers come from
china where labour and production cost is very low. The automobile supplier industry is facing a
strong restructuring process in the concentration of car makers and an ongoing out-sourcing
process of car manufacturer represent new challenges for the supplier.

Buyer Power:
At the present time, car buyers have negotiating power. Buyers knowing the score forehand and
knowing how much automakers want to keep sales up in tough times, they can negotiate the term
of monthly payment, they can buy last year’s new car with a high discount because backlogs are
caused to depreciation, they can get down to a good price before adding an incentive, for
instance negotiation a price before the financing and the trade in value.
http://www.marketwatch.com/story/five-car-buying-tips-that-take-advantage-of-hungry-dealers

Substitutes:

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There are numerous amounts of substitutes in the automobile market and if the price of one
vehicle increases the demand for a substitute will increase. Similarly if the gasoline prices
increase consumer tend to buy cars which have less fuel consumption. Generally, the higher the
cost of operating a vehicle, the more likely people will seek alternative transport options.
http://www.smh.com.au/news/ross-gittins/browser-wowsers-fuel-soaring-car-
sales/2005/08/02/1122748636664.html

Internal Rivalry:
The auto industry is very concentrated, with top 8 global auto companies having more than 90%
of global revenues and top 50 global auto parts companies having 80% of global revenues. Due
to globalisation the concentration in auto industry is increasing and the effects of globalisation
and economies of scale in auto market are remarkable. The advantages of global market and
economies of scale are leading inexorably to the concentration of output on hand for fewer and
fewer firms.
www.investopedia.com/features/industryhandbook/automobile.asp

Conclusion 5-Forces Model:

Conclusion from 5-forces model for UK automobile industry is that threat of new entrants is low
due to huge capital and cutting-edge technology. Suppliers are weak because they are spread all
over the world and cannot easily forward integrate. Buyers are medium due to low demand for
automobile and high switching costs; moreover, buyers are not able to backward integrate.
Substitutes are moderately strong due to different and less-expensive transportation facilities. On
the other hand, intensity of rivalry is strong because of major players are dominant in the market
by nearly same technology and manufacturing processes, suppliers relationship and distribution
systems.

The Demand for Strategic Choice:

To surviving in the auto industry’s interchangeable environment, it is required enough discipline,
specific information and innovation centres from the firm, organisation and flow of capital.
Firms should offer something different every year like Peugeot with electric car Peugeot Leonin
(Fig.1) in order to attract more customers than other competitors and it should find ways in order
to keep its domination on suppliers and some important buyers such as rental companies.
www.ecofriend.org/entry/eco-cars-peugeot-leonin-electric-car-complements-peugeot-s-lion/

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To achieve compliance with the industry rules, firms must develop structures, processes and a
culture in which listening and adapting to the environment becomes engrained.
• Individual firms should implement technologies which best address their own brand
values and market sectors.
• In medium term, improvement of conventional powertrains and transmissions can have
significant impact on fleet average CO2
• Introduction of increase levels of hybridisation / electrification is dependent on the
availability of battery, motor and power electronics technology with high power density,
high energy density and low cost.
• Widespread uptake of electric vehicle technology is dependent on availability of batteries
with low cost and high energy density along with the availability of an infrastructure
http://www.berr.gov.uk/files/file47663.pdf
Specific Examples
Research Medium Term Planning
• Higher efficiency IC engines
• Capacitive boost systems
• All electric actuation Systems
Propulsion • Optimised range extender engine
• Lower cost e-motor
• Heat Energy recovery (e.g. E-turbine)

Energy Storage • Next generation batteries 300+ Wh /Kg

• Flexible power electric modules
• Other forms of energy recovery
Vehicle Efficiency • New Vehicle classes and configuration
• Combination of function to reduce weight / cost
• Minimise weight / losses
• Advanced information enabled control
System control • Intelligent P/T and HVAC mgmt
• Intelligent energy / re-fuelling infrastructure (e.g. fast charge)
Energy + Fuel Supply
• Industrial scale demonstration of new 2nd gen bio fuel processes
Process + Tools • Auto optimisation methods using virtual systems.

http://www.berr.gov.uk/files/file51139.pdf
References:

www.loc.gov/rr/business/BERA/issue2/industry.html
www.investopedia.com/features/industryhandbook/automobile.asp
http://www.investopedia.com/features/industryhandbook/porter.asp
www.boozallen.com/media/file/56733.pdf

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faculity.winthrop.edu/stonebrakerr/book/automobiles.htm
www.johnkay.com/industries/26
http://www.smh.com.au/news/ross-gittins/browser-wowsers-fuel-soaring-car-
sales/2005/08/02/1122748636664.html
www.zacks.com/stock/news/16378/Auto+Industry
www.ecofriend.org/entry/eco-cars-peugeot-leonin-electric-car-complements-peugeot-s-lion/
www.marketwatch.com/news/story/five-car-buying-tips-take-advantage/story.aspx?guid={BB6D1A98-
A1BB-4293-887E-B4EE1C336C63}
http://www.berr.gov.uk/files/file47663.pdf
http://www.berr.gov.uk/files/file51139.pdf

Figure 1