Five Forces Analysis was developed by Michael Porter to better identify competitive opportunities and attractiveness within an industry or market. Other than a SWOT analysis, this is another analysis tool to identify opportunities and risks before entering an industry. Porter’s model supports analysis of driving forces in an industry. The management can make better decision by using the information that evaluated from detailed Five Forces Analysis.
The five forces that Michael Porter has identified are widely used to assess the structure of any industry. They are:
- Threat of New Entrants
- Bargaining Power of Suppliers
- Bargaining Power of Customers
- Threat of Substitutes
- Competitive Rivalry between Existing Players
Automobile is one of the most convenient transportation tools in our modern society today. Globalization enables foreign auto dealers to enter American market easily and also creates competition. In America, there are three major automobile manufacturers. They are General Motors, Ford, and Daimler Chrysler. However, the biggest competitions are the foreign auto manufacturers, Toyota and Honda.
Threat of New Entrants: MEDIUM
It is not that easy for an entrant to enter into a car industry because of the brand loyalty of customers. However, some of the well known foreign companies entered into US car industry easily, for instance, when Honda Motor, Co. opened its first office in Ohio, the major competitions began. The expansion of the foreign entrants decreases the market of American companies.
Bargaining Power of Suppliers: LOW
Suppliers have a little power in an automobile industry. That’s because numerous suppliers rely on some particular auto manufacturers to buy their products. Each manufacturer has many suppliers. For example, Toyota has more than 10 different suppliers in US. The main qualifications of the suppliers are the quality, cost, and delivery of the products. If suppliers can’t meet those basic considerations, it is hard for them to survive.
Bargaining Power of Customers: HIGH
There are various brands and models of the cars to choose from nowadays. The factors that affect consumer to make a buying decision are: the appearance, quality, price, and environmental effect. People always want a new and nice looking car. For those rich people who love cars, they always purchase the new released and attractive model. Besides that, the quality of the car is an important issue. The car has to efficient, which means saving gas, protecting our safety, and running fast. In addition, since there are many competitors, consumer have more choices to select a cheaper, but good quality car. Moreover, because of the global warming and other environmental effects, a lot of the manufacturers make their cars unique in order to protect the environment. Based on a variety of the lifestyles, people choose to purchase a car in a different way.
Threats of Substitutes: LOW
It is true that there are many of transportations substituting automobiles. They are bicycles, subways, buses, and trains. These substitutions really make our life easier if we live in the cities. On the other hand, for those people who live in Utah, upstate NY or suburb area, car is the only transportation tool other than walking.
Competitive Rivalry between Existing Players: LOW
Competition between existing automobile companies is high because there are too many choices for the customers. That may cause the industry earning lower profits when the cost of the competition is high.
There are two main ways that a firm can secure competitive advantage. The first one is Cost Leadership. That means a firm has an ability to sell its goods, generate larger margin on sales, or provides services at a lower price than its competitor. To win a cost leadership in an industry, the actual costs of the products or services have to be low. Two good examples are Jet Blue and Wal-Mart. A component to Jet Blue’s success is the ability to keep costs down. After completion of flights, even the pilots help clean the planes. In addition, all flight tickets from Jet Blue are electronic so there is no paper wasted. This saves the company thousands dollars on paper and labor hours. Therefore, the price of the ticket remains low compared to the other airline flying the same route. Round-trip tickets range anywhere from $98-$498. 
Another good example to illustrate cost leadership as a type of competitive advantage is Wal-Mart. Their slogan is, “Always the Lowest Price.” Wal-Mart has very successful in improving the revenues and markets shares and eliminating the competitors by selling at lowest prices. It has become the largest retailer in the world. They have vast distribution centers loaded with automated equipment and whiz bang technology, employ thousands of people, and own a fleet of trucks. Wal-Mart doesn’t order products for a short period of time; rather, they order quantities a region full of stores will need for a long period of time. Most of the products were imported from Asian countries. This lowers the costs of good sold. 
