External Environment Analysis of Car Motor Vehicle Industry Report

This report presents an external environment analysis of the car motor vehicle industry, exploring its history, the application of Porter's Five Forces model, and the reasons behind the preference of car manufacturers to import vehicles rather than manufacturing them in Australia. The analysis delves into the global automotive industry's evolution, highlighting key milestones and the influence of technological advancements and economic factors. The five forces model assesses the competitive landscape, including barriers to entry, the threat of substitutes, competitive rivalry, and the bargaining power of suppliers and buyers. The report also examines the shift towards importing cars into Australia, citing factors such as production costs, currency fluctuations, and import tariffs. The conclusion summarizes the key findings, emphasizing the significance of consumer preferences, production costs, and economic factors in shaping the car industry's strategies and market dynamics.

Running head: EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE
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External Environment Analysis of Car Motor Vehicle Industry
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1EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
Table of Contents
1. Introduction..................................................................................................................................2
2. History of World Automotive Industry.......................................................................................2
3. Five Forces Model of Global New Car Motor Vehicle Industry.................................................3
4. Preference of Car Manufacturers to Import Rather than Manufacturing in Australia.................5
5. Conclusion...................................................................................................................................6
References........................................................................................................................................7

2EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
1. Introduction
External business environment analysis takes into consideration evaluation of macro-
environmental analysis that can facilitate in development of strategies in driving organisational
growth. Industry environment analysis includes developing set of contingencies that has a direct
impact on the company’s strategic response (Blázquez and González-Díaz 2016). The objective
of the report is to analyse the external environment through conducting five forces analysis,
evaluating background of the global automotive industry and then explaining the reasons for
which he car manufacturers prefer to import rather than manufacturing within Australia.
2. History of World Automotive Industry
The global automotive industry was established in the year 1860 with including hundreds
of manufacturers and during the time of great depression the world had more than 32,028,500
automobiles in use. The global automotive industry includes the organizations and the related
activities associated with the manufacturing of motor vehicles encompassing components such as
fuel, batteries and tyres (Bloomfield 2017). Over the years, world’s automobile industry’s major
products are passenger automobiles along with light trucks that encompass vans along with
sports utility vehicles. Commercial vehicles such as delivery trucks are important within the
automotive industry but are considered secondary. The automobile industry has dominated the
world and is growing at a steady rate of 20% (Bolton, Murray and Fluker 2017). The global
automobile companies revolutionaries over the years with observing great prosperity within the
European automobile industry with production of cars from by Henry Ford and his model T cars.
Mass production of cars in the industry resulted in production of cheapest vehicles that can be
affordable for the American and European citizens. In the early 1900s several automobile

3EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
manufacturing companies came into existence in several European nations along with all over
the world (Dowling and Kent 2015). Over the years the automobile industry worldwide has
attained tremendous growth that has further resulted in the gasoline engines to become popular,
competition derived in technology and modifications in the assembly line made the cars
affordable. Such changes in the automobile industry are also observed to impact other economic
sectors worldwide such as petroleum and steel and also influenced the economic health of
several nations.
3. Five Forces Model of Global New Car Motor Vehicle Industry
Porter’s five forces analysis for the global new car motor vehicle industry facilitated in
analysing the competitive position of the industry based on which he automobile companies can
make decisions on their strategic planning initiatives (Hoffman 2019).

4EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
Figure 1: Porter’s Five Forces of New Car Motor Vehicle Industry
(Source: Kohpaiboon 2015)
 Barriers to Entry: This threat is low in the global car motor vehicle industry as it is
quite difficult by an average person to start manufacturing automobiles. However, the
emergence of the foreign competitors having capital, necessary technologies along with
management skills can grab the market share of several automobile organisations. It is
turning out to be simpler fir the multinational automakers to enter within the domestic
market. High sales of automobiles greatly rely on consumers’ preferences and tastes and
considering same more and more automobile companies are selling a huge fraction of
cars to businesses along with the car rental companies (Law 2017).
 Threat of Substitutes: Rather than taking into consideration the threat of consumers
purchasing a different car, there is a necessity to observe the likelihood of people taking
alternative vehicles for transportation other than cars such as train, bus or aeroplane.
Moreover, the gasoline price also has an impact on the consumers purchase decision
regarding new cars. It is observed that sports utility vehicles and trucks are attaining high
profit margins but they also consume high gas compared to light trucks and smaller sedan
cars (Rawlinson and Wells 2016).
 Competitive Rivalry: Highly competitive industries like the new car motor vehicle
sector generally attain low returns due to high cost of competition. This industry is
evidenced to face oligopoly competition that facilitates in decreasing effects of price-
boxed competition. The automakers in the global car motor vehicle sector realise that
price-based competition do not increase the marketplace size but they are focussed on

5EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
decreasing price-based competition as they face pressure from profit margins for vehicle
sales.
 Bargaining Power of Suppliers: The global new car motor vehicle supply business is
observed to be fragmented where several suppliers depend on more than one automaker
to purchase a majority of their products (Rinehart, Huxley and Robertson 2018). In case
the automakers decided to switch suppliers it might be devastating to the business of past
suppliers. For this reason, the suppliers are highly susceptible to requirements and
demands of the automobile manufacturers and hold less power in the global car motor
vehicle industry. In addition, new car vehicle parts are lasting longer that is considered
beneficial for consumers but not that advantageous for the parts makers.
 Bargaining Power of Buyers: The bargaining power of the buyers of the automobile
manufacturers is remained unchallenged (Van Den Hoed and Vergragt 2017). Consumers
in the global automobile market is observed to feel dissatisfied with several products
being offered to the automakers and for this reason in order to satisfy their needs they
look for alternatives such as foreign cars. In addition, it is also observed that the
consumers are highly price sensitive and they have less buying power as they do not
generally tend to purchase huge fraction of cars.
4. Preference of Car Manufacturers to Import Rather than Manufacturing in Australia
In the current years, it has been observed that the car manufactuers prefer to import rather
than manufacturing within Australia. For instance, it has been evidenced that more than 850000
cars were imported to Australia in the year 2016 among which the local manufacturers were
involved in new cars import and distribution (Van Den Hoed and Vergragt 2017). This is in
order to generate a substantial employment base all over Australia. The car manufacturers prefer

6EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
importing new cars within Australia and distribute them for the reason that such imports account
for 80% of the domestic sales of these Australian car manufacturers along with ensuing better
competitiveness. For decreasing expenses in car manufacturing and to attain strategic
competitiveness, the Australia based car manufacturers and distributors have shifted reduction of
new cars in different nations and consider importing such cars within Australia. Australian
production costs have turned out to be higher due to lack of capital investment within
equipments rather than high labour costs (Van Den Hoed and Vergragt 2017). The rise in the
Australian dollar indicates that indicates that the prices of the domestic cars get relatively
expensive in comparison to the price of the imported cars. Manufacturing cars and getting them
imported within Australia offered competitive edge to the car manufacturers in the form of
reduction in tariffs on import of passenger motor vehicles. As the US Dollar has weakened and
for this reason the price index of the imported cars has dropped by 2% and for this reason the
imported cars is therefore observed to be relatively cheap in compression to Australian cars (Van
Den Hoed and Vergragt 2017).
5. Conclusion
The objective of the report was to analyse the external environment through conducting
five forces analysis, evaluating background of the global automotive industry and then
explaining the reasons for which the car manufacturers prefer to import rather than
manufacturing within Australia. The report revealed that high sales of automobiles greatly rely
on consumers’ preferences and tastes and considering same more and more automobile
companies are selling a huge fraction of cars to businesses along with the car rental companies.
Australian production costs have turned out to be higher due to lack of capital investment within
equipments rather than high labour costs. The rise in the Australian dollar indicates that indicates

7EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
that the prices of the domestic cars get relatively expensive in comparison to the price of the
imported cars.
References
Blázquez, L. and González-Díaz, B., 2016. International automotive production networks: How
the web comes together. Journal of Economic Interaction and Coordination, 11(1), pp.119-150.
Bloomfield, G.T., 2017. The world automotive industry in transition. In Restructuring the global
automobile industry (pp. 19-60). Routledge.
Bolton, A., Murray, M. and Fluker, J., 2017, January. Transforming the workplace: Unified
communications & collaboration usage patterns in a large automotive manufacturer.
In Proceedings of the 50th Hawaii International Conference on System Sciences.
Dowling, R. and Kent, J., 2015. Practice and public–private partnerships in sustainable transport
governance: The case of car sharing in Sydney, Australia. Transport Policy, 40, pp.58-64.
Hoffman, K., 2019. Driving force: the global restructuring of technology, labor, and investment
in the automobile and components industry. Routledge.
Kohpaiboon, A., 2015. FTAs and supply chains in the Thai automotive industry. In ASEAN and
Regional Free Trade Agreements (pp. 247-273). Routledge.
Law, C.M., 2017. Restructuring the global automobile industry. Routledge.
Rawlinson, M. and Wells, P., 2016. The new European automobile industry. Springer.
Rinehart, J., Huxley, C. and Robertson, D., 2018. Just another car factory?: Lean production
and its discontents. Cornell University Press.

8EXTERNAL ENVIRONMENT ANALYSIS OF CAR MOTOR VEHICLE INDUSTRY
Van Den Hoed, R. and Vergragt, P.J., 2017. Institutional change in the automotive industry: Or
How Fuel-Cell Technology is Being Institutionalised. In The Business of Sustainable
Mobility (pp. 61-79). Routledge.