SmithC- Econ600- Project 2

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Running head: COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 1 Competitive Landscape and Future of the U.S. Auto Industry Ciara Smith American Military University Econ600: Managerial Economics Fereidoon Shahrokh 29 October 2023

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 2 Abstract This research study uses Porter's Five Forces framework to present a detailed analysis of the U.S. auto industry, offering insights into its competitive dynamics, market structure, and prospects. Deeply rooted in American history, the car industry in the United States faces severe rivalry among established competitors, high obstacles to entry, developing supplier relationships, and the influential roles of both consumers and dealerships. As new mobility choices grow, the mild threat of substitutes creates a dynamic backdrop. The industry must stay agile and imaginative as it moves toward electrification, autonomy, and sustainability. The future perspective is characterized by revolutionary developments like electric and autonomous vehicles, shifting customer tastes, and evolving regulations, which necessitate strategic acumen for long-term success in this fast-changing market.

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 3 The U.S. Auto Industry The American motor industry has grown extensively for over a century. The development of this industry is highly linked with the fabric of the history of the United States. The country's auto industry dates back to the 19th century, with significant turning points such as the 1886 creation of the first gasoline-powered car ( Dudukalov et al., 2020). The modern era of the American auto industry is marked by the manufacturing of the legendary Model T in 1908 and 20 th century-innovative development of the assembly line by Henry Ford. By using increased innovation, Ford improved the accessibility and affordability of automobiles in the modern era of the Auto industry to wider demographics ( Olabi et al., 2021). As a result, the American auto industry realized the mushrooming of major companies such as Stellantis, Ford, and General Motors (G.M.) currently controlling the U.S. Market. These companies have a long history of creating recognizable automobiles. The automobile industry has a significant impact on the American economy. The industry employs millions of Americans, particularly in businesses such as producing car parts and manufacturing motors ( Olabi et al., 2021). Along with its direct repercussions, the automobile industry impacts the future of other sectors, including steel, rubber, electronics, and transportation. Environmental challenges have greatly impacted the growth of the sector. Because of the ongoing changes in laws and regulations requiring lower emissions and more efficient fuel consumption, there have been significant changes in the production processes in the American auto industry ( Dudukalov et al., 2020). The industry has also made considerable advancements in developing electric and hybrid vehicles to respond to shifting environmental requirements.

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COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 4 The American auto industry is still at the forefront of technological advancement. It has consistently innovated in terms of connectivity, safety measures, and autonomous driving technology ( Olabi et al., 2021). Electric vehicle (E.V.) advertising shows how committed the industry is to employing cutting-edge technology and sustainability. Globalization has also had an impact on the American auto industry ( Dudukalov et al., 2020). To demonstrate how linked the business is on a global scale, major American automakers operate abroad, and foreign automakers have established production sites in the U.S. However, the sector faces several difficulties, such as shifting consumer preferences, trade conflicts, and tough rivalry from international automakers. The rapid adoption of electric and driverless vehicles, increased reliance on innovative materials, and steadfast attention to sustainable practices are notable trends ( Olabi et al., 2021). Government regulations and policies play a significant role in influencing the direction of the industry. For example, some approaches, such as the Corporate Average Fuel Economy (CAFÉ), are a government effort to ensure that consumers in the sector get fuel-efficient automobiles ( Dudukalov et al., 2020). Furthermore, the government provides subsidies and incentives that encourage the use of electric vehicles. In short, this government's active involvement in the actions and activities of the industry determines how the sector will develop. Recent events show how dynamic the sector is. Partnerships and mergers, like the one that created Stellantis when Fiat Chrysler and Peugeot merged, reflect the industry's continual development ( Olabi et al., 2021). The COVID-19 pandemic also greatly impacted sales and production, necessitating extensive adjustments to operational plans and adjusting to the shifting nature of the market ( Dudukalov et al., 2020). The competitive environment of the U.S. car

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 5 industry may be fully understood in light of this dynamic interplay of forces and historical antecedents. 3.1 US Auto Industry Definition The automotive industry in the U.S., also called the American auto sector, comprises an intricate network of vehicle manufacturers, sellers, distributors, producers, businesses that design, suppliers, and a network of manufacturers. The industry represents a vital part of the U.S. economy with a rich historical legacy that has liver for over a century. American auto industry produced a wide range of vehicles, from traditional fuel-powered engine trucks and cars to hybrid and electric motors that aimed to meet the diverse needs of customers. The industry extends beyond the U.S. borders as it plays a significant role in international trade and innovation, contributing to economic growth, creating jobs, and technical advancements on a global and national scale. 3.2. U.S. Auto Industry Market Structure The market of vehicles in the United States comprises a market structure called oligopolistic competition. The sector has an oligopolistic competition market because it contains few key companies or competitors with significant power. Such companies include Chrysler, now named Stellantis, Ford, and General Motors ( Barwick et al., 2021). Additionally, the market is oligopolistic primarily because the few mentioned competitors dominate it. However, the level of competitiveness in the American auto market has increased due to the admission of additional companies from the international market ( Dobbs, 2014). There is a high degree of vertical integration in the American automobile market mainly because of numerous manufacturers, designers, distributors, and automakers with different facets of the automotive lifecycle.

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 6 However, outsourcing and cooperative agreements with suppliers are becoming more popular. The distribution and maintenance of cars rely heavily on dealer networks. The wide variety of components needed for vehicle manufacturing is provided by suppliers, each with its competitive dynamics and negotiating ability Barwick, P. J., Cao, S., & Li, S. (2021). Constant technological advancement, notably in electric and driverless vehicles, gives the market structure a constantly changing character. Regulations like those governing emissions and safety requirements impact automakers' development and manufacture of cars. Additionally, both domestic and foreign automakers operate abroad, making the American auto industry a part of a worldwide network ( Dobbs, 2014). This interconnection affects competition and strategic choices by adding to the complexity of the industry's market structure. 3.3. U.S. Industry Future Outlook The automobile industry in the U.S. provides a promise that it is about to undergo massive transformation. The shift from traditional fuel or gasoline-powered vehicles is a prominent trend that indicates that the sector is accelerating toward an enormous response to environmental needs and concerns as well as the ever-changing preferences of consumers ( Giampieri et al., 2020). Established automotive manufacturers in the United States are investing heavily in the production of E.V. technology, and several new entrants are also headed to the creation of electric vehicles. It indicates that Americans will have a diverse range of cars because of the broader field of electric vehicles ( Giampieri et al., 2020). The advancement of autonomous cars has the possibility of development, investment, and research in full swing. Such technology can potentially reshape urban planning and the mobility of people. Sustainability and emissions reduction are central to the industry's future, with stringent government regulations driving automakers to produce more environmentally friendly vehicles.

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COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 7 This push for cleaner and more fuel-efficient options fosters innovations in vehicle design, materials, and powertrains. Shared mobility services and the rise of ride-sharing platforms are redefining traditional car ownership patterns ( Giampieri et al., 2020). As the industry aligns with these trends, automakers invest in digitalization and vehicle connectivity, enhancing features like infotainment systems and safety technologies. Amidst these transformative shifts, adaptability to changing consumer preferences, economic conditions, and regulatory landscapes will be essential for automakers to remain competitive and sustainable in the ever-evolving U.S. auto industry. 4. Application and Analysis of Porter's Five Forces Strategy to the U.S. auto industry Porter's Five Forces analysis of the auto industry in the United States finds a highly competitive sector marked by strong rivalry among current companies. Major players such as General Motors (GM), Ford, and Stellantis compete fiercely, always aiming for market dominance ( Burke et al., 2010). Because the business is mature and domestic market growth is limited, these companies rely on ongoing product innovation, intense marketing efforts, and pricing wars to gain market dominance. Furthermore, international manufacturers such as Toyota, Honda, and Volkswagen increase competitiveness, creating a dynamic climate where enterprises must consistently improve quality, technology, and operational efficiency to maintain their positions. This heated rivalry fosters innovation and benefits consumers through a steady supply of new vehicle features and options. Meanwhile, due to substantial entry barriers, the threat of new competitors to the U.S. car sector remains relatively modest. Potential newcomers are discouraged by high capital requirements, economies of scale, and the need for a large distribution network ( Burke et al., 2010). Established automakers have a competitive advantage based on mass production, brand

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 8 reputation, and competence. Despite these obstacles, the rise of electric vehicle (E.V.) manufacturers such as Tesla demonstrates that niche opportunities exist in the market. Overall, the automotive sector in the United States exhibits a complex interplay of competitive dynamics that are shifting in reaction to technological advancements, consumer preferences, and regulatory changes, needing strategic adaptation for long-term success. Bargaining Power of Buyers Buyers in the United States auto sector, including consumers and dealerships, have varied degrees of bargaining power. Thanks to web tools, price-conscious and well-informed consumers can quickly compare options from several automakers. This gives them sway over price and features ( Khurram et al., 2020). Dealerships, which operate as mediators between producers and consumers, also have bargaining power. They bargain for lower costs, seek marketing assistance, and pressure producers ( Burke et al., 2010). Automakers retain significant control by establishing terms and conditions, including imposing dealership practices that impact revenue. Buyer bargaining power in the U.S. car industry influences the market's competitive dynamics. Buyers, including individual consumers and dealerships, wield enormous strength due to several essential variables. For starters, buyers have grown more price-sensitive, using their easy access to online resources to research vehicle pricing, features, and reviews. This has allowed them to bargain more effectively with automakers and dealerships. Second, consumer desire for advanced vehicle features and technology has heightened rivalry among manufacturers to match these expectations. Dealerships, on the other hand, wield power as mediators between manufacturers and end users by negotiating pricing, marketing assistance, and sales terms Khurram, A., Hassan, S., & Khurram, S. (2020). Conversely, automakers keep significant control by establishing terms and conditions, frequently imposing dealership practices that might affect

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 9 profitability. In this climate, automakers' ability to meet the changing demands of both consumer and dealership purchasers has become a strategic imperative, influencing product development, pricing tactics, and marketing campaigns. 4.2 Bargaining Power of Suppliers The automotive industry in the United States relies on a vast network of suppliers for diverse components like engines, electronics, tires, and interior materials. Due to their massive order quantities and established connections, large automakers have traditionally wielded significant bargaining leverage over their suppliers ( Wellner & Lakotta, 2020). In this sense, however, the industry is undergoing a shift. Suppliers have become more specialized and important to automakers because of the tendency toward outsourcing and just-in-time manufacturing. This transition has given suppliers more bargaining strength, especially in the electric vehicle (E.V.) industry ( Wellner & Lakotta, 2020). E.V. manufacturers rely heavily on battery suppliers, which affects pricing dynamics and industry innovation. Supplier bargaining power in the U.S. car sector is a critical aspect that has evolved. Due to their massive order quantities, established partnerships, and vertical integration in manufacturing, large automakers have always wielded significant power over their suppliers. However, the sector is undergoing a dynamic transformation owing to the advent of sophisticated technologies such as electric cars (E.V.s). Suppliers are becoming more specialized and important in manufacturing these cutting-edge cars. E.V. manufacturers rely significantly on crucial components such as batteries, which has increased the bargaining power of select suppliers in this niche industry ( Wellner & Lakotta, 2020). Automakers are forming partnerships with suppliers, collaborating on R&D, and ensuring supply chain reliability. Strong relationships

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COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 10 with suppliers are critical for sourcing essential materials and components to meet evolving consumer demands and regulatory standards in this transformation era. 4.3. Competitive Rivalry in the Industry The car industry in the United States is characterized by fierce competition among established rivals. Market share is hotly contested by major manufacturers such as General Motors (G.M.), Ford, and Stellantis (previously Fiat Chrysler). They engage in ongoing product innovation, vigorous marketing efforts, and pricing battles to obtain a competitive advantage ( Isabelle et al., 2020). This rivalry is exacerbated by the industry's maturity and the domestic market's slow development rate. The existence of international competitors such as Toyota, Honda, and Volkswagen intensify the competitiveness. These multinational automakers compete with domestic incumbents and urge them to stay competitive ( Isabelle et al., 2020). As a result, organizations must constantly enhance quality, technology, and efficiency to remain viable. 4.4 Threat of Substitutes In the United States auto industry, the threat of alternatives is moderate. While public transportation, cycling, ride-sharing services, and even walking compete with personal vehicles, these options have not appreciably lowered the overall demand for private cars. The rise of electric scooters, car-sharing programs, and the promise of self-driving vehicles may increase the threat of substitutes, particularly in metropolitan regions where alternative mobility options are more easily available ( Isabelle et al., 2020). However, the personal automobile is profoundly embedded in American culture, and widespread adoption of alternatives may take time. In the United States, the danger of replacements creates a dynamic landscape in which traditional personal automobiles confront rising competition from other forms of transportation. Public transportation, cycling, walking, ride-sharing services, and car-sharing programs have all

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 11 become popular alternatives, particularly in cities. These alternatives provide convenience, financial savings, and environmental benefits that are appealing to an increasing number of consumers ( Wellner & Lakotta, 2020). Furthermore, the rise of electric scooters and other micromobility solutions offers new options for short-distance commuting. The development of self-driving vehicles adds another layer to the replacement environment, potentially changing how consumers access transportation services. While these alternatives may not replace traditional car ownership, they are transforming customer behavior and affecting strategic decisions in the auto sector. In the United States, the danger of replacements creates a dynamic landscape in which traditional personal automobiles confront rising competition from other forms of transportation. Public transportation, cycling, walking, ride-sharing services, and car-sharing programs have all become popular alternatives, particularly in cities. These alternatives provide convenience, financial savings, and environmental benefits that are appealing to an increasing number of consumers ( Wellner & Lakotta, 2020). Furthermore, the rise of electric scooters and other micromobility solutions offers new options for short-distance commuting. The development of self-driving vehicles adds another layer to the replacement environment, potentially changing how consumers access transportation services ( Wellner & Lakotta, 2020). While these alternatives may not replace traditional car ownership, they are transforming customer behavior and affecting strategic decisions in the auto sector. 4.5 Threat of New Entrants The threat of new entrants into the U.S. car sector is modest. Multiple entry hurdles dissuade potential newcomers. High capital needs for establishing manufacturing facilities, R&D costs, and the necessity for a large distribution network all pose significant financial challenges.

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 12 Another key impediment is economies of scale. Large-scale production benefits established automakers by lowering manufacturing costs per unit. It is a disadvantage to enter the industry with a small-scale operation. Building a brand reputation and confidence in safety and dependability further complicates the admission process. Notably, Tesla is a one-of-a-kind example of a successful new entrant in the electric vehicle (E.V.) category. Despite early difficulties, it has carved out a place within the larger sector. Finally, applying Porter's Five Forces to the automotive industry in the United States reveals a complex and dynamic competitive situation. Existing competitors compete fiercely, affected by innovation, pricing, and marketing efforts. High entry barriers inhibit new entrants, while instances such as Tesla in the E.V. sector illustrate the potential for niche success. Supplier bargaining power is changing, particularly in the context of developing technologies such as E.V.s. Buyers, both consumers and dealerships, wield varied degrees of intensity, and the prospect of alternatives, while present, has had little effect on customer behavior. The industry's response to ongoing changes, such as electrification and autonomy, will further shape these forces, influencing the industry's competitive dynamics. Conclusion In conclusion, the auto industry in the United States is a complex and highly competitive landscape marked by a rich historical history, key companies, and a network of suppliers, dealerships, and consumers. When applied to this industry, Porter's Five Forces paradigm provides a full insight into its competitive dynamics. Intense rivalry among established competitors, significant entry barriers, developing supplier dynamics, influential buyers, and a mild threat from replacements play important roles in determining the industry's strategic decisions and competitiveness. The industry is at a tipping point, with electric vehicles,

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COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 13 autonomous technologies, and the need for sustainability altering the environment. Automobile manufacturers respond to these shifts by investing in innovation and forging strategic alliances. Looking ahead, the future picture for the U.S. auto industry is characterized by significant movements toward electrification and autonomous driving. These changes, which bring difficulties and possibilities, are driven by environmental concerns and changing consumer tastes. The industry's reaction to these changes will impact its capacity to compete in the global market. Automakers will need strategic agility, technological innovation, and a clear understanding of customer behavior to flourish as they navigate these changing forces. The automotive sector in the United States is poised to be at the forefront of technological innovation, sustainability, and consumer-driven mobility solutions in determining the future of transportation.

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 14 References Barwick, P. J., Cao, S., & Li, S. (2021). Local protectionism, market structure, and social welfare: China's automobile market. American Economic Journal: Economic Policy , 13 (4), 112-151. Burke, A., van Stel, A., & Thurik, R. (2010). Blue ocean vs. five forces. Harvard Business Review, 88(5), 28-29. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45. Cole, Fulton, and Akridge. Industry Analysis: The Five Forces https://www.extension.purdue.edu/extmedia/ec/ec- 722.pdf Dudukalov, E., Subhani, M. I., & Ushakov, D. (2020). Human well-being and automotive industry: Correlations in the era of economic digitalization. In E3S Web of Conferences (Vol. 217, p. 03004). EDP Sciences. https://doi.org/10.1504/IJATM.2023.129649 Giampieri, A., Ling-Chin, J., Ma, Z., Smallbone, A., & Roskilly, A. P. (2020). A review of the current automotive manufacturing practice from an energy perspective. Applied Energy , 261 , 114074. Isabelle, D., Horak, K., McKinnon, S., & Palumbo, C. (2020). Is Porter's Five Forces Framework Still Relevant? A study of the capital/labor intensity continuum via mining and I.T. industries. Technology Innovation Management Review , 10 (6). Khurram, A., Hassan, S., & Khurram, S. (2020). Revisiting Porter's five forces model: Influence of non-governmental organizations on competitive rivalry in various economic sectors. Pakistan Social Sciences Review , 4 (1), 1-15.

COMPETIVENESS AND FUTURE OF THE U.S AUTO INDUSTRY 15 Olabi, A. G., Wilberforce, T., & Abdelkareem, M. A. (2021). Fuel cell application in the automotive industry and future perspective. Energy , 214 , 118955. Wellner, S., & Lakotta, J. (2020). Porter's Five Forces in the German railway industry. Journal of Rail Transport Planning & Management , 14 , 100181

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