Research Paper: United States Automotive Industry

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[. . .] The automobile industry of the United States is saturated by a large number of well-established local and international brands. General Motors, Ford, and Chrysler are the local automobile giants whereas Toyota, Honda, Nissan, Suzuki, and Hyundai; the big five international brands have more than 80% share in this industry. All these local and international brands are competing with each other on the basis of technology, exterior design, performance, prestige, price, fuel efficiency, and environmental impacts of their automobiles.

In order to attract customers from the potential markets, these competitors are expending a huge amount from their budget on their marketing and promotional activities. Advertisements are done on all the electronic, print, and social media in which target customers are directly addressed and persuaded using different marketing strategies and tactics. Due to this high level of competition among the top rivals, the small scale auto manufacturers find it harder to compete just on the basis of price and quality of their automobiles. Therefore, they are entering into joint ventures with other local and international automobile manufacturers and supply chain members in order to grow in the U.S. auto industry and compete with the top rivals in a more competitive and profitable fashion.

3. Threat from the Substitute Products:

The manufacturing participants of the U.S. automobile industry have always been facing a dual competition. On one side, they have to compete with the new automobile manufacturers that come from other regions of the world to target the U.S. auto industry, and at the same time, they have to maintain their position in the automobile industry in the presence of a large number of alternative transportation mediums available in the country. From this dual competition, the alternative transportation mediums are a bigger threat for the automobile manufacturers. The transportation infrastructure of the United States has significantly improved during the last few decades. This improvement has largely facilitated the expansion of local train, subways, and buses network in the country. The easy availability of public transportation mediums has negatively affected the demand for personal automobiles by the U.S. citizens. The impact of these substitute transportation mediums is comparatively lower in the rural areas of the country due to smaller buses and railways network. The overall negative impact of these public transportation mediums equally prevails on the local and international manufacturers; either they are well-established business or new entrants in the U.S. automobile industry.

Another substitute for the fuel based automobiles is electric cars which have recently been introduced by Electric Car Corporation in the United Kingdom and many other manufacturers in China, Germany, and Japan. If these low priced cars arrive in the United States market, they will pose a big threat to the automobile manufacturers that have been charging a high price for their cars. The arrival of these substitute automobiles may totally exclude the middle income group from the potential target market of the existing automobile manufacturers (McCarthy, 2007).

4. The Bargaining power of Customers:

Due to a high level of competition among the top industry rivals and new entrants, the bargaining power of customers is very strong for the U.S. automobile industry. The customers in the U.S. market have now become more knowledgeable and price conscious than before. They make complete analysis of different brands according to their requirements and preferences before making their purchase decision in favor of a single brand. The market leaders like Toyota, General Motors, Ford, Chrysler, Honda, etc. have an established brand image which impulsively attracts customers to buy their cars. On the contrary, U.S. customers hesitate to buy cars and other automobiles from new brands due to the lack of reliability and brand loyalty with new manufacturers (Clarke, 2007).

In the automobile market of the United States, the customers generally look for fuel economy, performance, and prestige which an automobile can give them against their money (Bigelow & Argyres, 2008). Therefore, they refuse to accept a brand if it does not meet their preferences and life styles. Due to this strong bargaining power of customers, the automotive manufacturers in the United States make great efforts to present their brands in the most competitive form. They spend huge amounts on Research and Development in order to bring innovation and extraordinary features in their automobiles which can distinguish their brands from those of other manufacturers in the industry. The strong bargaining power of customers have also enforced the U.S. automobile manufacturers to keep their profit margins low while spend a significant portion of their budget on promotional campaigns in order to attract the potential buyers.

5. The Bargaining power of Suppliers:

The bargaining power of suppliers is relatively weak in the U.S. automotive industry due to a large number of domestic and foreign suppliers operating in the country. Anticipating a potential market for their business, Asian, African, and European suppliers have entered the U.S. market and started manufacturing auto parts for all types of vehicles. Due to a large number of suppliers, the U.S. automobile manufacturers have a wide range of choice to select auto parts and other raw material suppliers for their business. Suppliers in the U.S. automotive industry are not on the bargaining edge. Therefore, they are not in a position to charge a high price for their products as it may make their customers switch to other low price suppliers (Hill & Jones, 2008). The suppliers not only have to offer high quality products at low prices, but also have to ensure a regular and timely delivery of these products in order to survive in the industry and maintain long-term relationships with their customers (automobile manufacturers).


The manufacturers in the U.S. automotive industry operate in the presence of a strong competition from local and international competitors. The top industry rivals compete with each other on the basis of quality, fuel economy, performance, and environmental impacts of their automobiles. The new entrants in the industry try to give them a tough competition with their low priced automobiles but fail due to lack of brand loyalty on their brands by the general customers. The U.S. automobile manufacturers also face a big threat from the substitute transportation mediums including buses and trains which restrict the potential customers from buying their personal automobiles.

The bargaining power of customers is very strong in this industry due to a wide range of choice among top quality local and international brands. On the other hand, the auto parts and raw material suppliers are on a weak bargaining edge due to the presence of a stiff competition from foreign suppliers. The business operations and profitability of the U.S. automotive manufacturers and suppliers is affected by the quality and price of the products, brand loyalty and preferences of the customers, and the level of competition between the local and international businesses operating in the industry.


Bigelow, L.S., & Argyres, N. (2008). Transaction Costs, Industry Experience and Make-or-Buy Decisions in the Population of early U.S. Auto Firms, Journal of Economic Behavior & Organization, 66 (4): 791-807.

Clarke, S.H. (2007). Trust and Power: Consumers, the Modern Corporation, and the making of the United States Automobile Market, 1st Edition. New York: Cambridge University.

Hill, C.W., & Jones, G.R. (2008). Strategic Management: An Integrated Approach, 8th Revised Edition. [S.I.]: Houghton Mifflin.

McCarthy, T. (2007). Auto Mania: Cars, Consumers, and the Environment, 1st Edition. New Haven: Yale University Press.

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Vlasic, B. (2011). Once upon a Car: the fall and resurrection of America's big three Auto Makers -- GM, Ford, and Chrysler, 1st Edition. New York: William Morrow. [END OF PREVIEW]

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