Attractiveness of the Automobile Industry

Economic reforms and deregulation have transformed that scene. India has already become
one of the fastest growing automobile markets in the world. The Indian automobile industry
is going through a technological change where each firm is engaged in changing its processes
and technologies to maintain the competitive advantage and provide customers with the
optimized products and services. Starting from the two wheelers, trucks, and tractors to the
multi utility vehicles, commercial vehicles and the luxury vehicles, the Indian automobile

General Motors will be investing Rs 100 crore, Ford about Rs 350 crore and Toyota
announced modest expansion plans even as Honda Siel has earmarked Rs 3,000 crore over
the next decade for India - a sizeable chunk of this should come by 2010 since the company is
also looking to enter the lucrative small car segment.

Commercial vehicle segment, Ashok Leyland and Tata Motors have each announced well
over Rs 1,000 crore of investment. Mahindra & Mahindra's joint venture with International
Trucks is expected to see an infusion of at least Rs 500 crore. Hero Honda is about to
establish its fourth manufacturing plant. Bajaj Auto and TVS Motors are moving to the
excise-free zones of Himachal Pradesh and Uttaranchal for putting up new capacity.

The growth of the Indian middle class along with the growth of the economy over the past
few years has attracted global auto majors to the Indian market. Moreover, India provides
trained manpower at competitive costs making India a favoured global manufacturing hub.
The attractiveness of the Indian markets on one hand and the stagnation of the auto sector in
markets such as Europe, US and Japan on the other have resulted in shifting of new capacities
and flow of capital to the Indian automobile industry.

Global auto majors such as Japanese auto majors Suzuki, Honda and Korean car giant
Hyundai are increasingly banking on their Indian operations to add weight to their businesses,
even as numbers stay uncertain in developed markets due to economic recession and
slowdown.

Moreover, according to a study released by global consultancy firm Deloitte, at least one
Indian company will be among the top six carmakers that would dominate the global auto
industry by 2020. According to the study, the car industry would see a massive capacity
building in low-cost locations like India as manufacturers shift base from developed regions
5-Forces Model and UK Automobile Industry

Potential Entrants:

It is very difficult for new firm to enter in automobile industry. An entrant has to
spend big amount on safety, motor management, comfort, design and numerous
electronic functions. Car industry focused on brand loyalty, and this is an
advantage of existing auto firms in the auto i n d u s t r y, b e c a u s e b u s i n e s s h a v e
i n v e s t e d m o r e t o w i n a c u s t o m e r t h a n k e e p h i m l i k e F o r d , Toyota, Honda.

Supplier Power:

There are different kinds of suppliers in auto industry. There are suppliers for
braking system,classic and frame, cooling system, electrical system and engine, exhaust
and fuel supply system. However the most important suppliers are steel suppliers
and the biggest suppliers come from china where labour and production cost is very
low. The automobile supplier industry is facing a strong restructuring process in the
concentration of car makers and an on going out-sourcing process of car
manufacturer represent new challenges for the supplier.
Buyer Power:
At the present time, car buyers have negotiating power. Buyers knowing the score forehand
and knowing how much automakers want to keep sales up in tough times, they can negotiate
the term of monthly payment, they can buy last years new car with a high discount because
backlogs are c a u s e d t o d e p r e c i a t i o n , t h e y c a n g e t d o w n t o a g o o d p r i c e
b e f o r e a d d i n g a n i n c e n t i v e , f o r instance negotiation a price before the financing and
the trade in value.

Substitutes:

There are numerous amounts of substitutes in the automobile market and if the
price of one v e h i c l e i n c r e a s e s t h e d e m a n d f o r a s u b s t i t u t e w i l l i n c r e a s e .
S i m i l a r l y i f t h e g a s o l i n e p r i c e s increase consumer tend to buy cars which have less
fuel consumption. Generally, the higher the cost of operating a vehicle, the more likely
people will seek alternative transport options.

Internal Rivalry:

The auto industry is very concentrated, with top 8 global auto companies having more than
90%of global revenues and top 50 global auto parts companies having 80% of global
revenues. Due to globalisation the concentration in auto industry is increasing and
the effects of globalisation and economies of scale in auto market are
remarkable. The advantages of global market and economies of scale are leading
inexorably to the concentration of output on hand for fewer and fewer firms.

Conclusion 5-Forces Model

Conclusion from 5-forces model for UK automobile industry is that threat of new entrants is
low due to huge capital and cutting-edge technology. Suppliers are weak because they are
spread all over the world and cannot easily forward integrate. Buyers are medium
due to low demand for automobile and high switching costs; moreover, buyers
are not able to backward integrate. Substitutes are moderately strong due to different
and less-expensive transportation facilities. On the other hand, intensity of rivalry is strong
because of major players are dominant in the market by nearly same technology and
manufacturing processes, suppliers relationship and distribution systems.