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“Abstract
The United States economy suffered a major crisis in 2008 when the stock market crashed; the housing market was also collapsing and not forgetting the banking industry. This crisis was transferred to the motor vehicle industry where three major car manufacturers; Chrysler Ford and GM suffered sales drop in 2009. The General Motors and the Ford were the hardest hit and their market share dropped drastically and they were on the course of collapse. This crisis was the immediate cause of the economic downturn in the US history and thus the government had to act first to save the economy from collapse.
Introduction
In 2009 the American auto industry was in a dire economic state where the major car manufacturing companies were on the path of collapse. Chrysler organization was in chapter 11 of reorganization the General Motors was on the brink of Bankruptcy while the Fords future was at a state of uncertainty. The collapse of these companies would have had an adverse effect on the economy of the country and more so the economies of the state of Michigan and Ohio. This state came exactly after the inauguration of the new president Obama into power. So the first task the new government was to ignore the state of affairs of these companies and concentrate on more pressing matters of the economy. The president had an option of either bailing out the companies or leaving them to collapse. The president had to bail the General Motors and Chrysler in order to push and revive the economy back again. The companies had to file for bankruptcy for them to have reorganization and more funding from the government. The funds would be used to undergo restructuring of their process so as to save the jobs that were to be lost in the collapse of the industry. The companies were forced to apply for chapter 11 reorganization so as to receive loans from the US government. The government did this so as to save the crisis of the economy which was under recession and if the collapse of the industry occurred the economy would have fallen to depression (Hill & Jones 2007).
Industry definition
An auto industry can be defined as a set of operations that car makers apply to manufacture vehicles on a large scale. The American Auto industry started in the 1890s and has seen tremendous growth due to clear innovations being undertaken by the industry leaders in their quest to supply American with better auto mobile facilities (Ahlstrom & Bruton 2010).
Industry profile
The American auto industry is controlled by three major companies set up in the area. These companies include the General Motors Ford and the Chrysler. These companies have been in existence from the great depression and continue to thrive and prosper in sales and market sales. In recent years the industry has faced fierce competition from other car dealers around the world who are invading the American market. The government has always wanted to protect the local industry and in 2009 the government had to save the collapsing industry (Henry 2008).
Industry structure
The American Auto industry although being controlled by the three local cars manufacturers each company controls a given market share. The table below shows the market share of car sales on the American market.carmaker
2011
2010
2009
2008GM
19.5%
18.8
19.7%
19.7%FORD
16.5%
16.4%
15.3%
14.2%TOYOTA
12.6%
15.2%
17.0%
16.7%CHRYSLER
10.5%
9.2%
8.8%
10.8%HONDA
9.7%
10.6%
11.1%
10.8%Source: automakers
Future outlook
The American auto industry looks promising due to the economic boom being experienced in the country economic as a result of revival of the car industry by the government. The government did funding for the local industries so as to save the economy from collapse. By 2011 after the restructuring of the companies; GM Chrysler and Ford posted a market share of 47.1 % of the motor sale in the American auto market. The porters five forces model have helped to revive the motor industry in the United States where the market information has been vital in trying to revive the once collapsing industry (Berger 2001).
Porters five forces strategy
Porters five point forces are used to examine the effectiveness and attractiveness of any industry. The five forces are known as P5F and they are used to check the profitability of a given industry. The five forces include the threat of new entrants the bargaining power of buyers threat of substitute products bargaining power of supplier and lastly the intensity of competitors rivalry (Roy 2009).
The threat of new entrants
In the vehicle manufacturing industry there is generally a very low threat from new entrants into the industry. The threat of new entrants is very low due to the competitive advantage that the already established companies enjoy. Most of the successive auto industry were incorporated long time ago and have continued to enjoy low threat from new entrants. Different factors have made these companies to enjoy the competitive advantage. Some of these factors include high set up capital which not many new companies can raise and thus the threat of new entrants is reduced. High capital set up is required to set up the manufacturing yard and order for raw materials that will be used to make the vehicles. The companies also need to hire qualified technicians to work in the different sectors of the industry. The government regulation in terms license and government policy to protect local indigenous companies from collapse is another factor that lower the chance of a new entrant into the auto industry. A new company needs to have a distribution network which is not easy to acquire in an already established auto market. New entrants also need to have brand recognition in a way they can associate themselves with the brand. These are some of the factors that established auto industries in the United States enjoy from the threat of new entrants in the market (Beecroft 2008).
Bargaining power of Buyers
Different market forces exist in the United States vehicle market where the forces of demand will most control the prices of cars in the market. For example if I may ask who in country owns a car that he or she never bargained for? I dont think anybody has. Thus bargaining in any kind of market is very health as each individual tries to earn maximum satisfaction from the purchase and sale of goods and service. By 2009 most US car dealers were offering great deals to the buyers so as to keep their sales going and grow their companies to the next level. The quantity of the product also determine the bargaining power of the buyer most car sellers and dealers are driven to make the maximum sale form their products and thus if a customer was to make more than one purchase he or she would have been discounted. Thus the quantity of purchase also would help to put the customer at a better bargaining advantage for another sale. The auto industry in the country is very competitive and thus the company that wins the heart of many clients will be able to earn considerable amount of profits and carry on its operation comfortably over the years. Bargaining power of buyers is a market strategy for the companies that exist in the auto industry as its seen as a customer satisfaction strategy. Any business firm strives to satisfy its customer on whatever way possible that does not lead the company into loss (Cooney & Yacobucci 2006).
The threat of substitute products
In any market the threat of substitute product is a worry to producers. If the substitute products are being offered at a low price than the current products in the market its calls for a worry to the sellers. The same may happen in the vehicle industry as new substitute products come and are introduced in the market. If the buyers are more attracted to the new products then the sale of the current products falls and may lead to losses for the companies. For all the established car makers in the United States the organization administrations are always involved in learning new information for the buyers. Thus the producers must always keep vigil of any new products in the market so as to safe guide the companies operation from collapse as a result of losses like the ones that affected the auto industry in US in 2009. The buyers are always attracted to good products that offer better service at a low cost and thus if the substitute products plays this role then the buyers have no option but to switch. The threat for these companies comes from the new vehicles introduced to the market like the cheap Japan cars that are competing with the United States made and assembled vehicles. So as to reduce this competition and be at a better competitive advantage the US car dealers have product improvement and differentiation to suit current customer needs. Having advanced information and understanding the customer needs give these American cars manufacturing the competitive advantage over other competitors in the market. The companies have been in existence in the economy for long and thus they seem to understand their clients needs and the local market (Freedman 2011).
Bargaining power of suppliers
Suppliers in any kind of business play a major role in determining the operations of the company. For any operation to run smoothly the role played by them is paramount. Suppliers are the main provider of raw materials that are vital in the smooth running of any operation. In the auto industry supplier refer to providers of parts electronic components tyres metal rails and human resource in form of employees. The employees have workers union that helps to negotiate for pay hike and better working conditions for the workers. In the United States car industry the same applies with workers union and they are very strong and thus most of the employees salaries are dictated by their own terms. Thus the bargaining power of suppliers is a vital strategy that needs to be applied by any auto industry because the price set by suppliers control the price of each vehicle the company will sell. If suppliers have a lot of bargaining power then the commodity price will also rise as the price of parts is reflected on the car being sold by the car manufacturing company (Berger 2001).
Competitive rivalry in the industry
Competitors are people or individuals who are fighting to control the same kind of resources together. Thus in the car manufacturing industry the competition comes form other companies in other countries who manufacture cars. The US car industry faces stiff competition from other industrializes countries like Japan the UK China France and India. In the car industry there must exist healthy competition as it brings innovations and new models and designs for the cars and thus the current competition has bore fruits for the industry. For all the established car makers in the United States the organization administrations are always involved in learning new information for the buyers. Thus the producers must always keep vigil of any new products in the market so as to safe guide the companies operation from collapse as a result of losses like the ones that affected the auto industry in US in 2009. The buyers are always attracted to good products that offer better service at a low cost and thus if the substitute products plays this role then the buyers have no option but to switch. The threat for these companies comes from the new vehicles introduced to the market like the cheap Japan cars that are competing with the United States made and assembled vehicles. So as to reduce this competition and be at a better competitive advantage the US car dealers have product improvement and differentiation to suit current customer needs. Having advanced information and understanding the customer needs give these American cars manufacturing the competitive advantage over other competitors in the market. The companies have been in existence in the economy for long and thus they seem to understand their clients needs and the local market (Weintraub & Sands 1998).
Conclusion
It was in 2009 that the auto industry in the US was in crisis but after the inauguration of the new president the country administration was confronted with what to do about the industry. The president had an option of either bailing out the companies or leaving them to collapse. The president had to bail the General Motors and Chrysler in order to push and revive the economy back again. The companies had to file for bankruptcy for them to have reorganization and more funding from the government. The funds would be used to undergo restructuring of their process so as to save the jobs that were to be lost in the collapse of the industry. The companies were forced to apply for chapter 11 reorganization so as to receive loans from the US government. The government did this so as to save the crisis of the economy which was under recession and if the collapse of the industry occurred the economy would have fallen to depression. The economy of the state of Michigan and Ohio would have been compromised by the collapse of the auto industry as they are the main employment provider in the state. By 2011 after the restructuring of the companies; GM Chrysler and Ford posted a market share of 47.1 % of the motor sale in the American auto market. The porters five forces model have helped to revive the motor industry in the United States where the market information has been vital in trying to revive the once collapsing industry (Rae 1984).”