Question

Review Porter's Five-Forces Model in Chapter 3.  Evaluate each force in the model as either a weak, moderate or strong competitive force based on the criteria in the text and PPs and within the context of your general knowledge of the world-wide automobile industry.  Based on your evaluation, give an overall assessment on the intensity of competition (either weak, moderate and strong) in the world-wide automobile industry. Hint: as your text indicates, the rivalery among competing sellers, in the center of the model, is the strongest of the five forces and should be weighted the highest force in making your overall assessment of the industry.

Answer 1

Porter's Five -Forces Model is--

Porter's Five -Forces Model is--

1.The threat of new entrants

2. Bargaining power of suppliers

3. Bargaining power of buyers.

4. The threat of substitutes.

5. Rivalry among existing competitors.

These five tools determine to formulate the strategy of the Automobile industry as well. The worldwide Automobile industry is very competitive and having strong competition among them.

Due to the competition which is backed by all five Poter’s Five Forces, the profit margin depends differently. However, if it is being viewed through the lens of two critical performance indicators, the industry is in serious trouble.

Innovation & Returns----

1^st, total shareholder return (TSR)-Over the last five years, the annual rates of return that the S&P 500 and Dow Jones Industrial Average achieved for investors (including dividends) were 14.8 percent and 10.1 percent, respectively.

2nd, return on invested capital: In 2016, the top 10 OEMs returned an anemic 4% about half of the industry’s cost of capital. The top 100 suppliers have done a little better, just beating their costs of capital to enjoy a small positive return, after many years of negative net returns.

These numbers almost outweigh the positive sales and earnings results.

To be sure, rates of return on capital have been a problem endemic to the auto industry for years, which is one reason for the many bankruptcies or near liquidations — among OEMs and suppliers, particularly in the past decade.

Indeed, however, it is particularly notable about the current wave of innovation in automobiles is not so much the speed with which it has emerged (though that is remarkable) as the breadth of the innovation.

Last but not the least- The future of automobile companies due to the strong competition will be rocky and probably unable to improve returns of the capital.