General Motors, one of the leading automobile manufacturers in the world has established a strong global presence and built a market-leading position for itself in the key automobile markets including China and the United States. Among all the automobile brands operational in the United States, General Motors holds the largest market share. However, there is intense competition in the automobile industry and that has led to higher pressure on brands related to technological innovation, operational efficiency, and marketing. There are several forces that affect the position of automobile brands in the industry including the level of competition and their overall influence in the market. Porter’s five forces model is an effective analytical tool to analyze how these forces which are a part of every industry affect the competitive position of a business and its overall profitability.
A Five Forces Analysis of General Motors
Bargaining power of the suppliers:
The bargaining power of suppliers in the automobile industry is generally low except for a few large players which are either themselves automotive brands or are large technology companies. The leading factors that limit the bargaining power of suppliers include the small size of supplier businesses, their lack of ability of forward integration, strong financial and purchasing power of automobile brands and more factors. Automobile brands like General Motors do not depend on single sources of raw material since it can limit their ability to bring quality products to the market faster. Since GM is a large and global company with access to raw material from suppliers located all around the globe and all the capital it needs to buy parts and raw material available at its dispense, the bargaining power of its suppliers is greatly limited.
Overall, most factors favor the automobile brand rather than the suppliers and therefore the auto firms like GM enjoy higher bargaining power than their suppliers. Moreover, in the case of large auto brands, it is also possible that they engage in backward integration to some extent like producing some of the most important parts and raw materials in-house. GM is making battery cells for electric cars in house and since it is preparing for a greener future of mobility, this will reduce its dependence on other leading suppliers like Tesla and prove profitable for the company. Tesla which is the leading supplier of battery cells for electric cars in the industry enjoys higher bargaining power than the other smaller suppliers. The overall bargaining power of the suppliers is low in the automobile industry.
Bargaining power of Buyers:
The bargaining power of buyers in the automobile industry is moderately high and the main contributing factor is the growing role of consumers and changing demographic trends. The consumer is now even central to the success of large businesses in any industry including automobiles. Around the world, the large and global auto firms like General Motors are dedicating their efforts to offer their customers a safer and more convenient as well as a greener driving experience. There are several factors that have led to growth in the bargaining power of customers including government regulations favoring consumers, increased competition, higher availability of substitutes and increased availability of information.
Switching costs are high in the automobile industry but still, companies cannot afford to lose customers because of the intense competition. The size of every purchase is significantly large whether for a family car or a premium, luxury or sports car brand. Overall, the bargaining power of buyers is moderately high which is because there are also some factors that act to moderate customers’ bargaining power like brand equity, technological innovation, marketing, product quality, and the high switching costs. However, gaining loyalty is now more difficult for automobile brands than a decade ago.
The threat of new entrants:
The threat of new entrants for general Motors is very low or nearly negligible. While existing brands are forming alliances to grow their clout, the entry of new players has been made impossible by the very high entry barriers. Apart from the large capital required for making an entry into the automobile industry, the regulatory barriers also stop new players from entering. There are several laws that act as barriers and apart from the necessary permits and licenses, other legal needs also exist making entry difficult. Inherent risks are also greater in the automobile industry and established brands like General Motors do not have to fear new players snatching market share from them. Any new brand even if it makes an entry will have to build trust and brand equity which will require both financial capital and time. Moreover, brands like General Motors enjoy very strong brand loyalty which is very difficult to build for a new brand. The high level of competitive pressure also works as a deterrent for new players. The overall level of threat from the new entrants for GM gets to become very low in light of all the above-discussed factors.
The threat of substitutes:
The threat of substitutes is moderate for GM. It is because apart from the rival automobile brands, there are other substitutes too including public transportation. Taxi services like Uber and Lyft also offer substitutes for an owned car. However, there are several factors that limit the threat from substitute products like brand equity, customer loyalty and the independence that comes with owning a car. General Motors has a large product portfolio that caters to the various price segments and different transportation needs of the customers. In combination with technological innovation, its large product range has helped the company grow the demand for its products. Higher demand and customer loyalty have also led to a decline in the threat of substitutes which overall remains moderate.
The intensity of rivalry in the industry:
The level of competitive rivalry in the industry is very high and apart from the presence of a large number of players, the evolution of the public transportation system and increased focus on technological innovation have also played a material role in intensifying the rivalry between automobile brands.
The growing competitive rivalry has led to higher operating expenses for General Motors apart from a higher focus on technological innovation as well as marketing and customer service. There are more than twelve competitors of General Motors in the global market. Rivals like Ford and Toyota or FCA and VW are large and influential players with a large market share. Due to the higher competitive pressure, General Motors has to place more focus on research and innovation.