Summary of Five Forces
This study primarily aims to help the existing players in the automobile retail industry to analyze the competition in the industry. A structural analysis of the automobile retail industry will serve as guidance in formulating competitive strategies for the current players. In order to determine the nature of the competition in the industry, it is important to gather and examine data about the industry is necessary as well as be able to identify the impact of the movie production industry to the Philippine economy through thorough analysis. The nature of the competition in the industry must be analyzed through the evaluation of the five forces.
Threats of New Entrants
Industry Attractiveness
Determinants Attractive Moderate Unattractive
Capital Requirement High High Economies of scale Low High
Switching cost High High
Cost Disadvantages High High Access to distribution Low High
channels
Brand Loyalty High High
New entrants to an industry bring new capacity that is the desire to gain market shares. The capital requirement in this industry is relatively high since it needs a large financial requirement to be able to franchise with internationals automobile manufacturers. Moreover, the one who is entering the business must invest in a already established brand car automobile companies to guaranteed income and not loss for the first try. The economy of scale of entry barriers here has a vertical integration, when there is a operation in successive stage. Here the new entrant expects cost disadvantages since some of the consumers buy their cars directly to the in-house units. The switching cost is moderately high since it needs to fund large amount of equipment, product redesign or new resource. On the cost disadvantage independent of scale, it is probably high because if the new entrants are pertaining a new automobile brand, he will face cost disadvantages since there are a lot of established automobile brands in the market with high brand loyalty from the supports of the car brand. And lastly, the access to distribution channel is low since the major logical distribution channels are serving the already established car brands.
Bargaining Power of Buyers
Industry Attractiveness
Determinants Attractive Moderate Unattractive
Purchase Volume Low Low
Differentiation Low Low
Switching cost High High
Market Knowledge Low Low Threat of Backward Integration Low Low
Brand Loyalty High Low
Buyers compete with the industry by forcing down prices, bargaining for a higher quality or more services, and playing competitors against each other. The purchase volume in this industry is relatively low since the amount of money to buy an automobile needs a lot of money. Also, automobile has almost low differentiation since all of the functions of the car are almost found in many automobile car brands. The switching cost face by the buyer is high since for example, an Isuzu brand car owner wants to buy a Toyota; he needs to add up money to be
brands he just know the top of mind characteristics of it and not a mere deep information about it. In effect, the market knowledge becomes low. The threat of backward integration is low since the demand of parts and equipment to make an automobile is low and will make harder for them to make an own manufactured car. Lastly, the brand loyalty is high since most of the established car brands gets the majority of market share nit just locally but also by the influence of international relation.
Bargaining Power of Suppliers
Industry Attractiveness
Determinants Attractive Moderate Unattractive
# of suppliers Low High
Substitutes of inputs
High High
Switching cost High High
Threat of forward Integration
Low High
Suppliers can apply bargaining power in an industry by raising prices or reducing the quality of purchase. Suppliers in this retail industry are found mostly abroad and almost captured by the established automobile brands already. Since the supplier knows, that they will have a long-term business with the retailer, they will probably stayed to a one or two retailer to supply to. Inputs can be found in many automobile’s equipment and parts of suppliers, if the supplier of the retailer faced many options, it will have a high substitute of inputs in which they can demand the price of each equipment and parts. It is also connected with the switching cost wherein the supplier (manufacturer) faced many options in choosing where to get some machinery and parts in building a car. Lastly, the threat of forward integration is low because it is subjected with the policies made by firm’s control.
Intensity of Rivalry Among Existing Competitors
Industry Attractiveness
Determinants Attractive Moderate Unattractive
# Of players High High
Growth of Industry
High High
Fixed cost High High
Brand Loyalty High High
Industry life cycle
Switching Cost Low High
Rivalry among existing competitors occurs when competitors feel the pressure or see the opportunity to improve position. It is sometimes in the form of price competition wherein rivals easily match price cuts. The number of players is one of the threats between competitors since they are fighting for the market share on the same ground. Also, it creates instability since the automobile brand leaders can easily penetrated the remaining market share because of its growing innovation every year. There is a high industry growth in this industry since the demand of the automobile is high. Thus, they can easily get the demand of people through the help of financials loans and all. In terms of fixed cost, there is a high fixed cost or storage cost in the Industry since it will cost them a land and building to rent for it. The brand loyalty is high due to the established name that symbolized quality to the consumers. The industry life cycle here is low since the prices of the cars are relatively high, it will become hard for them to sell all their products at a large scale. From then, the price of switching cost is low since the price of car has always a matched to the other car brands.
Analysis of Financial Performance of Key Players
Gross Profit Margin:
Toyota 2012 2013 2014
Gross Profit 880,206,443 881,518,205 1,128,449,545
Sales 1,681,753,792 1,684,235,971 1,931,941,877
Gross Profit Margin .52 0.52 0.58
Mitsubishi 2012 2013 2014
Gross Profit 473,577,580.23 432,343,083.83 487,132,000.05
Sales 2,076,274,442.12 2,506,230,868.94 3,186,655,000.28
Gross Profit Margin .23 .17 0.15
Ford 2012 2013 2014
Gross Profit 975,520.80 1,032,663.88 9,774,699,400.00
Gross Profit Margin .15 0.15 1.42
Isuzu 2012 2013 2014
Gross Profit 88,300,430,599.95 10,676,553,058 134,102,074,821.11
Sales 587,877,624,049.19 695,165,498,528 739,367,360,102.40
Gross Profit Margin .15 0.02 .18
Return on Assets:
As you can see base on the data gathered by the group Toyota and Ford has the same return on assets ratio compared to other competitors
B. Critical Success Factors
Critical success factors are factors that an industry need in order to be successful in the long run. Although there are many factors that can affect the success rate of the automotive retail industry with the data that the group gathered these are the most prominent out of them all. First is Positive Image public image is what consumers in the industry look for. A buyer makes sure that the vehicle they purchased is safe to use. The perception of how the company acts figures greatly in the buying decision. Factors that greatly influence an automotive retail company's image include advertising, word of mouth and expert reviews and opinions.
Toyota 2012 2013 2014 Return on Assets 0.012 0.01 0.02 Mitsubishi 2012 2013 2014 Return on Assets 0.001 0.002 0.03 Ford 2012 2013 2014 Return on Assets .43 1.12 0.02 Isuzu 2012 2013 2014 Return on Assets .11 .36 0.08
Advertising perhaps is one of the important factors in order A automotive retail company to be successful. With this these the public will know what the company has to offer. In the Philippines they’re certain events where in car companies show off the products that they can offer to their consumers. These events sometimes are held in the World Trade center in the Philippines. Sometimes Car companies have stalls in malls where some of their vehicles are displayed for the visitors of the malls to see. Second is promotion, Promotion is needed to employ by the Automotive retail companies in order for them to attract more customers aside from the product itself promos help consumers to set in their mindset that by availing it can be more of an advantage to them.
Look at what Mitsubishi is doing right now because of the controversies they face they tried many options in order for their consumer not to ignore them they have set up stalls in different malls for their brand new Montero Sports car and have promos such us discounts in order to attract other consumers.
Lastly efficient operations, efficient operation translates into competitive advantage in the market. Toyota’s success shows the importance of operational efficiency, and showcases the corporation’s ability to be flexible and responsive to customer demand. It is clear that in order to achieve growth, auto companies must realign themselves to attain operational efficiency. Operations need to be flexible and responsive to customer demand.
C. Key Risk Area
As competition grows, launching new models at short amount of time is of vital importance, but poses some large challenges for automakers. This is connected to the automotive retail industry because without new products to sell faster, how can the Automotive Retail Industry companies keep up in the market.
Improved supplier-manufacturer relationships are another aspect that may well define the success of the automotive retail industry. Developing a supplier strategy for improving relations with suppliers will help auto companies to ensure goal compatibility and adopt better product improvement parameters for retailers to sell.
In order to meet environmental norms and customer expectations, it has become a necessity to install the latest technological features in new automotive products. The real challenge comes in developing a car or vehicle that meets safety and environmental standards whilst maintaining excellent performance. Safety is what consumers tend to look at before buying a car in a retail shop.
Fuel efficiency is also very important and hard to handle because of the inconsistency of the fuel prices. There are cars in certain companies that focuses on fuel efficient so that will not be a problem but not all companies do. If consumers want a car that is fuel-efficient they have to look at specific car models of an Automotive Retail Company.