General Motors Pest Analysis
General Motor’s Strategic Analysis pressure from substitute or complementary products, (4) bargaining power of buyers, and (5) bargaining power of suppliers.
1. Rivalry between existing competitors
With the rise of foreign competitors like Toyota, Honda and Nissan in the 1970's and 80's, rivalryin the American auto industry has become much more intense. Firms compete on both price andnon-price dimensions. The price competition erodes profits by drawing down price-cost marginswhile non-price competition (e.g., new car rebates and interest free loans) drives up fixed cost(new product development) and marginal cost (adding product features). One of the other reasonsthere is such high rivalry is that there is a lack of differentiation opportunities. All the companiesmake cars, trucks or SUVs. The competitors are compared to one another constantly. In recentyears there has been significant market share variation, another indication of rivalry and its verystrong threat to profits.
2. Threat of entry by new competitors
The presence of new firms in an industry may force prices down and put pressure on profits. Thereare, however, barriers to entry that tend to protect established firms. One would expect the production of automobiles to require significant economies of scale, an important barrier to entry.The new entrant would have to achieve substantial market share to reach minimum efficient scale,and if it does not, it may be at a significant cost disadvantage. While the evidence suggests thateconomies of scale in the auto industry are substantial, there are also indications that large sizemay not be as important as commonly assumed. Nevertheless, entry would represent a large capitalinvestment to any new firm and the body of research still indicates that economies of scalerepresent a substantial barrier to entry. Consequently, entry is currently a weak threat to profitability.
3. Price pressure from substitute or complementary products
While five-forces do not directly
1. Rivalry between existing competitors
With the rise of foreign competitors like Toyota, Honda and Nissan in the 1970's and 80's, rivalryin the American auto industry has become much more intense. Firms compete on both price andnon-price dimensions. The price competition erodes profits by drawing down price-cost marginswhile non-price competition (e.g., new car rebates and interest free loans) drives up fixed cost(new product development) and marginal cost (adding product features). One of the other reasonsthere is such high rivalry is that there is a lack of differentiation opportunities. All the companiesmake cars, trucks or SUVs. The competitors are compared to one another constantly. In recentyears there has been significant market share variation, another indication of rivalry and its verystrong threat to profits.
2. Threat of entry by new competitors
The presence of new firms in an industry may force prices down and put pressure on profits. Thereare, however, barriers to entry that tend to protect established firms. One would expect the production of automobiles to require significant economies of scale, an important barrier to entry.The new entrant would have to achieve substantial market share to reach minimum efficient scale,and if it does not, it may be at a significant cost disadvantage. While the evidence suggests thateconomies of scale in the auto industry are substantial, there are also indications that large sizemay not be as important as commonly assumed. Nevertheless, entry would represent a large capitalinvestment to any new firm and the body of research still indicates that economies of scalerepresent a substantial barrier to entry. Consequently, entry is currently a weak threat to profitability.
3. Price pressure from substitute or complementary products
While five-forces do not directly