In 2009 the American auto industry was in a dire economic state. Chrysler was in Chapter 11, GM was on the brink of bankruptcy, and Ford’s future was at best uncertain. The demise of the U.S. auto industry would have a devastating impact on our national economy and specifically the economies of Michigan and Ohio.
Economists occasionally use Porter’s five forces framework when making a qualitative evaluation of a firm’s strategic position. According to Porter, his model should be used at the industry level, defined as a marketplace in which similar or closely related products or services are marketed. This research paper requires the application of Porter’s Five Forces Model to the auto industry.
Porter’s analytical framework consists of those forces that affect a producer’s ability to serve its customers and make a profit. A change in any of these five forces requires a re-assessment of the marketplace. The five forces include:
1) The threat of substitute products: The existence of close substitute products (i.e., high elasticity of demand) increases the propensity of customers to switch to alternatives in response to price increases.
2) The threat of the entry of new competitors: Unless there are significant barriers to entry, profitable markets that yield high returns will attract firms (i.e., perfect competition), effectively decreasing profitability.
3) The intensity of competitive rivalry: As in the case of oligopoly markets, rivals may choose to compete aggressively, non-aggressively or in non-price dimensions.
4) The bargaining power of customers: The ability of customers to put the firm under pressure due to availability of existing substitute products, buyer price sensitivity, uniqueness of the products, etc.
5) The bargaining power of suppliers: The cost of factors of production (e.g. labor, raw materials, components, and services such as expertise) provided by suppliers can have a significant impact on a company’s profitability. As such suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
Porter, M.E. (1979) “How competitive forces shape strategy”, Harvard Business Review, March/April 1979.
Porter, M.E. (1980) “Competitive Strategy”, The Free Press, New York, 1980.
Porter, M.E. (1985) “Competitive Advantage”, The Free Press, New York, 1985.
Develop a detailed paper applying Porter’s Five Forces Model to the American automotive industry.
Your paper needs to include at least three scholarly sources, i.e. peer reviewed articles. I strongly recommend the use of the APUS library for these sources, as most acceptable resources can only be found in protected databases.
Your paper should be about 10 double spaced pages, in APA format, and structured as follows:
- Cover page with a running head 2. Abstract 3. Introduction to the Auto Industry 3.1. Industry Definition 3.2. Industry Profile 3.3. Industry Market Structure 3.4. Future Outlook
Porter’s Five Forces Strategy Analysis as it applies to the Auto Industry 4.1. Bargaining Power of Buyers 4.2. Bargaining Power of Suppliers 4.3. Competitive Rivalry in the Industry 4.4. Threat of New Entrants 4.5. Threat of Substitutes
Conclusion 6. References
ECON 600 Research Project 2 Rubrics
Identification of auto Industry
Did not fully identify the auto industry structure.
Identified the auto industry structure correctly.
In addition to meeting the requirements ofsatisfactory, provided an analysis of market structure requirements including number of firms, uniformity of products, ease of entry and exit.
Identification of Porter’s Five Forces
Did not identify all five forces.
Identified all five forces.
In addition to identifying all five forces provided the detail for relating them to the requirement of market structure.
Identification of Application of Porter’s Five Forces to auto industry
Did not clearly identify an appropriate application of each concept identified in the scenario.
Clearly identified an appropriate application of each concept identified in the scenario.
In addition to meeting the requirements ofsatisfactory, discussed at least one future opportunity.
Demonstrate Critical Thought in Analyzing Information
Does not demonstrate critical thought in the analysis of the information, or analysis is disjoint
Demonstrates critical thought in analyzing the information by presenting various perspectives on the concepts 5-8
In addition to meeting requirements ofsatisfactory,synthesizes information across concepts effectively. 9-10
Demonstrate Quality and Effectiveness in Written Communication
Written communication is ineffective, with numerous spelling and grammatical errors or poorly constructed sentences. 0-4
Written communication is effective.
In addition to meeting the requirements ofsatisfactory, the paper is engaging to the reader with concise and clear communication. 10-15
Adhere to APA Writing Style Requirements
Numerous errors in format, style, or reference citation 0-3
Few errors in format, style, or reference citation. 4-7
Virtually no errors in format, style, or reference citation. 8-10
Outside of specified range by more than 10%. 1-4
Outside of specified range by 10% or less.
Within specified range. 10
Conformity Percentage greater than 35%, excluding bibliography.Grade discounted up to 50%.
Conformity Percentage between 20% and 35%, excluding bibliography. Grade discounted up to 30%.
Conformity Percentage smaller than 20%, excluding bibliography. Perfect.