Power of Buyers Historically, the power of buyers has been a steady factor due to unchallenged supply of many national

automakers in or out of their host country. The alternatives the market offers now between so many automakers, creates pressure in the supply side to maintain innovation of products, and fulfill the expectations and hunger of consumers for new technology. The transformed scene of the auto industry has been in distress for the past decade, especially in weak economical conditions like in 2008. Automakers compete worldwide to give the end targeted user a better price while minimizing their cost of production through selected suppliers. That being said, consumers for this industry are extremely price sensitive, they depend on suppliers and automakers, and have no buying power as the common buyer do not buy high amounts of cars. On the other hand, one should understand that the market demand a company holds, depends inevitably on the market size, and thus the share revenue a company can attain from it. End users may not hold a considerable amount of buying power individually, but collectively, it could generate the necessary shifts in price and the supply of cars for each brand. The ability to change between brands for customers is not necessarily difficult, but globally still realistic considering that the switching cost for consumers are low, the incentives from competing brands are broad, and the financing capabilities of individuals are relatively easy to attain. It is important to denote as well, the capacity for entities to attain information in todays world is remarkably easy. Internet has made the flow of information so broadly available, consumers of the auto industry do not have to go far to find the best deals or inform themselves of competitive models for a certain brand. This in turn makes it difficult to generate sales through typical channels used in the past, giving the buyer the power to adapt faster.

Many automakers produce and assemble their cars from purchased components, or original equipment supplied (OES), and only produces the sheet metal of it or original equipment manufacturer (OEM). The reason is attributable mainly to compliance of international standards for parts and of the proliferation of free markets. The power of suppliers in the automotive industry is low and we can denominate the relationship between automakers and materials producers to develop in a oligopsony market. That means there are many suppliers for a small amount of buyers. This in turn makes it easy for the buyer to play suppliers against each other to offer the best price, making it extremely competitive and even more in an industry such as the automotive one. Market trends signal in direction of a more efficient car, and past experience for automotive companies advise the life of the industry relies in oil prices, economic health, government regulations, foreign competition and the implementation of new technology. There is two long term issues that have affected the industry and hence their providers. The first is competition with other firms, and more specifically to non-national ones. The competition between suppliers to provide better resources and materials for auto producers could be seeing form two perspectives. To comply with federal regulations that keep threatening both the supplier, and the auto manufacturers, and to supply products based on prices that still lead to profitability. The second long term issue for suppliers is best characterize by technological advances. At a production level many manufacturers of raw material and parts, have established productivity advances that allow for a smooth technological transition into the future of auto manufacturers requirements. At the same time, the reality of an economy that is in a downturn has affected sales that influence suppliers in the past. It only makes sense that if industry sales go down auto manufacturers are not

going to demand that many supplies to be produce. On the other side, the future of car technologies will lead to the efficiency of cars parts, and suppliers are aware of it, fewer parts means lower sales margins. That being said, suppliers expect new technologies that are driven by auto producers to lead the numbers, and the specifics of production needed to fabricate a car. In the past, suppliers have had very low power because they rely on one or two automakers to buy their products, but the future could very well be the opposite if only one or two suppliers deliver the necessary elements of upcoming cars. This scenario is only temporal of course, as the introduction curve will adjust accordingly to market growth speed, and more suppliers will acquire new proficiencies.

http://www.fdic.gov/bank/analytical/quarterly/2009_vol3_1/RecessionAddsManufacturingChalleng es.html http://www.jsonline.com/business/36571439.html

Worksheet: For each force, go through the issues that represent high or low power. Determine whether or not, collectively, the force affects the attractiveness of the industry. Recall that most of the forces are not of equal impact in the industry. Identify the forces with the most impact. After you have gone through all five forces, be sure to include a summary of your analysis and what it means for the industry. If the industry is segmented, be sure to include a brief discussion of that fact and how the forces might differ across the different segments. The best way to approach this section is to use each of the forces as a secondary heading and discuss how each of the forces corresponding criteria (or those that are relevant) impacts the strength of that force for the industry. Be sure to provide relevant (and cited) examples of how the suppliers, buyers, new entrants, rivals, and substitutes are impacted by these different criteria. Then, after discussing each forces relevant criteria, conclude a final level of strength of impact of that force relative to the industry (e.g., you might include a concluding sentence that says something like Based on the analyses conducted above, the power of buyers is low. Alternatively, begin the section with a sentence something like The power of buyers in this industry is low. This was determined by examining each of the criteria relevant to the power of buyers, as discussed below. Then you would discuss each criterion that leads you to that conclusion).

3. Drivers for Change in the Broad Environment

Research: Search for information using the PESTLE model such as: Sociocultural, technological, political/legal, or economic trends; long term growth rate; who buys the product and how they use it; significance of product innovation and technological change; marketing innovation; entry/exits of major firms; diffusion of technological know-how; extent of globalization; changes in costs and efficiencies; emerging buyer preferences (shift towards differentiation or commodity); regulatory influences; changes in societal concerns, attitudes, or lifestyles; reductions in uncertainty and risk in the industry over time. Worksheet: You do NOT need to discuss all factors in the general environment, only those relevant to the industry under study. Thus, be sure to discuss ONLY the most relevant factors for your industry. Most common general environmental factors include technological change, demographic trends, legal and political conditions, economic climate, cultural trends, and specific international events (e.g., global changes). Simply discuss how the relevant trends in the general environment impact your industry. A nice way to approach this section is to include cited examples of firms within the industry that have had to adjust their business practices (or who have responded to the trend) as a consequence of the trend. Be sure to also discuss the implications of the trends for the industry. As such, you will not just state what the trend is, but you need to directly tie the trend to the implications that it will have (or is having) on the industry. Examples: Discuss only the issues that are most important to your industry. Long term growth rate, buyer profile and how they use it, product innovation & technological change, marketing innovation, entry/exits of major firms, diffusion of technological knowhow, globalization, changes in costs and efficiencies, emerging buyer preferences (shift towards differentiation or commodity), regulatory influences, changes in societal concerns, attitudes, lifestyles, and reductions in uncertainty and risk in the industry over time. Use the PESTLE model where appropriate in this section.