Porters 5 Analysis Auto Industry in 2009 Essay
The case on the global automobile industry demonstrated by lowering cost through innovative production without sacrificing quality is the defining characteristic in a successful company. I found this case interesting because it characterized a successful automobile producer as one that will cut cost in an innovative approach to deal with a market that is constantly changing. The innovation in producing automobiles started with Ford through mass production and continued all the way to today with companies promoting major suppliers to move closer to assembly plants to cut cost. Since the beginning of the automobile industry the company that was able to lower their cost was the company that would lead the way. However, giving up …show more content…
Bargaining Power of Suppliers
The power of suppliers in the auto industry is weak because automobile companies are no longer vertically integrated. The industry in now purchasing its component parts from other companies. For example Ford and GM spun off two companies, Delphi and Visteon, which produce parts for its automobiles. Ford and GM are able to lower cost by shedding union workers to these spin off companies. Automobile companies have been able to entice producers of their components to move closer to automobile production facilities and compete with spin off companies. Suppliers are now making deliveries on a JIT basis which lowers the price of the vehicle.
There are intense price measures on suppliers to produce quality products at a reasonable price. If the quality of products is not up to standards, automobiles companies are willing to leave long term contracts. Chrysler walked away from a $90 million dollar contract with a supplier because the product was not of good quality. Automobile companies are able to demand higher quality inputs and demand lower input prices.
The threat of substitute products is low because of the convenience of traveling in an automobile. There are other options of travel such as public transportation, motorcycles, or bicycles but none as