The Barriers For Entry Into The Automotive Industry Essays

1096 Words Oct 27th, 2015 null Page
The barriers for entry into the automotive industry are high. Car manufacturing is a highly capital-intensive industry and thus new entrants require large sums of capital to enter the industry. This capital goes into purchasing a manufacturing plant, sophisticated capital equipment, raw materials and supplies, and requires extensive supply chains. Additionally, the automotive industry invests a large portion of capital into research and development. Research and development in economic terms are a sunk cost because before the firm even sells one vehicle it must undergo the research and development/engineering expense. Other significant sunk costs come in the form of a marketing campaign. Technological innovations through the research and development segment allow for automotive firms to lower costs and achieve economies of scale. In addition, the firms in the industry must comply to government regulations regarding environment and safety standards, such as fuel efficiency; this adds to the difficulty of entering the industry. Additionally, customers are loyal to established brands and as a result brand strength and reputation are exceedingly important when establishing oneself in the industry. Consequently, the automotive industry is greatly affected by the cyclical nature of the economy, and therefore, when the economy suffers a downturn, so does the automotive industry. However, the automotive industry in Canada garnered a profit of $698.1 million. Overall, the barriers…

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