A Case Study On The Australian Automotive Industry

This report is a case study on the Australian Automotive Industry. It identifies and describes the five force analysis developed by Michael Porter, and applies this framework to the industry in order to analyse the impact of profitability. Economic analysis is conducted to help support the framework and explores a variety of concepts in order to determine the potential profitability in the industry and whether it is growing or declining. The key success factors that are considered in the report for the Australian Automotive Industry are economies of scale, flexibility to adopt new technology, ability to obtain finance and development of strong supplier relationships (IBISWorld, 2014). These factors are analysed to justify the potential profitability that the industry currently offers and how each force is impacted in relation to these key factors.

Internal Rivalry

Internal rivalry described by Besanko, Dranove, Shanley and Schaefer (2007) refers to the "jockeying for share by firms within a market". In the Australian automotive industry, there are a number of rivals competing for the same consumer outcome of purchasing their products. A typical example of the rivalry would be Holden versus Ford. There are a number of international rivals that have penetrated the industry also seeking a share in sales such as Volkswagen, Renault, BMW and Mercedes-Benz. Price competition is a major influence in the industry, and Besanko et al. (2007) outlines a number of conditions that influence price competition, such as: many sellers in the market; Industry is stagnant or declining; firms have different costs. Price competition is also impacted by the consumers needs. For example, a consumer generally regards the European brands BMW and Merce...

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...nsumer interest and sales began to increase. However, without attaining economies of scale, the cheaper pricing of cars without making much of a profit is not sustainable and an alternative method of producing products at a cheaper price long term was to be sought. Consumer demand of imported vehicles, had sparked an increase in imports into the country causing local manufacturing to cease production and move overseas in order to reduce costs per unit to maintain profit margins. It is clear that this move is to achieve economies of scale as well as maintaining competitiveness in the evolving industry. Therefore the analysis concludes that the manufacturing of automotive vehicles is declining and will soon cease to exist in Australia. Profitability is declining, until a cheaper alternative of cost per unit is achieved, hence economies of scale will also be achieved.