Free GM and The U.S. Automobile Industry Essay Sample
The automobile industry fits in neatly with the new trade model within the global economy. Its market structure is described as a differentiated oligopoly with no-price-competition and price collusion. In 1970, the Big Three - General Motors, Ford, and Chrysler - dominated the U.S. automobile industry, with American Motors and Volkswagen as minor manufacturers or producers. By the end of 2004 there were 11 companies with auto plants within the U.S. (Grant 2005, p. 414). The overall impact has been intensified price competition and lower productivity.
The rivalry in the U.S. automobile industry has become much more intense. It is also facing mounting external rivalry from the public transport sector, as consumers evaluate their private vehicle usage. Although purchasing a new car was attractive for many U.S. citizens, they were forced to use their earnings for basic requirements first. With G.M., being one of a largest producers in both, trucks and SUV's (e.g., hummer), sales have severely decreased due to the lack of fuel efficiency. The rise in fuel prices played an important role in creating the opportunity for development of hybrid and more fuel efficient vehicles.
Competition in an industry is a composite of 'five forces model' that is answered while analyzing the competitive situation. How much does the business depend on the buyer, if a feeler to gauge? If the business has only one major buyer, or a few, without alternatives available, the buyer has great bargaining power over the production. As Lussier (2008, p. 126) points out, GM told its suppliers that they would have to cut their prices or lose its business. Many of these businesses sold mainly or solely to G.M. and therefore had no bargaining power. These are the most obvious forms of competition: the head-to-head rivalry between firms making similar products and selling them in the same market. Rivalry can be intense and cut-throat or it is governed by unwritten agreements that help the industry to avoid the damage that excessive price-cutting, advertising and promotion expenses can inflict upon profits. Competition may be over prices or over a range of factors such as advertising, service, quality, outlets, and so on.