Don't have a Fit, Dude

29 January 2010
Massive recalls from both Toyota and Honda must be causing widespread alarm in the auto industry. Just a few days ago, Toyota announced recalls of millions of cars due to a faulty accelerator pedal.

Now Honda is recalling 646,000 Fits (also known as Jazzes) and Citys because of a defective switch that could lead to fires.

Porter's Five Forces Analysis of Automobile Industry

Porter's Five Forces, also known as P5F, is a way of examining the attractiveness of an industry. It does so by looking at five forces which act on that industry. These forces are determinants of that industry's profitability.

The five forces are:

1. The threat of new entrants

A Porter's Five Forces Analysis explores five principal industry factors to determine the attractive of a given industry in a given market. In this P5F exercise, we look at the automobile industry in India. This is independent of any manufacturer. As such, it applies to every Indian car manufacturer.

In any P5F analysis, one must examine the following:

1. The threat of new entrants
2. The bargaining power of buyers/customers
3. The threat of substitute products
4. The amount of bargaining power suppliers have
5. The amount of rivalry among competitors

Porter's Five Forces Analysis - China

Porter's Five Forces evaluates the competitiveness and attractiveness of a given industry in a certain market. China is an interesting market to analyze for any industry, especially the automobile industry. China is experiencing tremendous growth, and in 2009 more cars were sold in China than in the US.

To see a P5F analysis of the auto industry in the US, click here.

The Porter’s Five Forces analysis is designed to evaluate the competitive forces in the industry the firm operates. If it determines that the combination of forces in the industry act to reduce profitability, it is saying the industry is unattractive. Even worse is an industry close to total competition.