Bargaining Power of Suppliers: The automobile supply companies have limited bargaining power. There are so many supply firms and there are so many parts that are required to produce an automobile, requiring numerous suppliers, one would think that the automakers would be at the supplier’s mercy. However, the suppliers really have very little power. The suppliers tend to rely on one or two automakers to purchase the majority of their products. If the automaker decides to change suppliers, the effects to the supplier would be devastating.
With the JIT (Just in Time) manufacturing methodology Honda utilizes, there is a push-pull mechanism. This warrants a strong relationship between manufacturer and suppliers. This also can be quite profitable for both organizations. Bargaining Power of Buyers: The automotive industry is highly competitive, therefore buyers have some degree of control, as there are many automobiles from which to chose. Consumers have the greatest power in the relationship in the fairly standardized nature of the automotive commodity and the low switching costs associated with selecting from competing brands.
Honda has a history of delivering high quality and fuel efficient vehicles. With the increase in fuel cost and the state of the economy, the consumers are seeking the best product for a good price. Honda has been a leader in producing fuel efficient and low emissions vehicles. As the world has a greater awareness of the need to protect the environment and to go green, Honda continues to improve the vehicles produced with this focus. In 1977 and 1983 the Honda Civic model ranked first in U. S. fuel-economy tests.
Honda has introduced hybrid vehicles such as Insight, Civic, and Accord. In 2006, the Honda Insight was listed as the most fuel efficient car. These are just some of the examples of how Honda works to meet the demands of the consumers. In the past history of automotive sales, the automakers really went unchallenged, especially in the United States. They did tend to have more bargaining power. Consumers became more and more disenchanted with the vehicles that were produced. This is when the foreign automobile sales increased and Honda was a large part of that. Threat of new entrants:
In the automotive industry barriers to entry are habitually high due to the capital costs required in automated manufacturing, design, location, materials costs, marketing expenses, and so many other factors that are too numerous to document. Although the threat of entry of new manufacturers is low, in the 1980s the United States car manufacturers were faced with numerous new entries when the consumers were extremely frustrated with the automobiles that were produced at the time. This is one of the reasons Honda became such a competitor in the American market.
As the worldwide fuel sources continue to be depleted, the need for new technology and new or different energy sources is more than evident. This will allow for new entrants in the near future. Honda will need to continue to be a leader in the market for meeting these demands. Another factor to consider is with the challenges facing America and the current state of the economy. Numerous American automotive manufacturers are filing bankruptcy, closing their manufacturing plants, and essentially going under. This could be another opportunity for new entries in the automaker industry.
Threat of Substitutes: The threat for of substitutes to the automotive industry as a whole is relatively mild. There are numerous forms of transportation, however none as convenient or valued as owning a vehicle. The use of other forms of transportation such as trains, buses, or bicycles is an option and even saves the owner cost such as gas, insurance, taxes. However, this does not pose a huge risk of being a substitute. Consumers enjoy the ease of owning an automobile for things such as transporting luggage and groceries which would not be nearly as easy to carry on the bike, train, or a bus.
The exception to this is in urban areas where walking, mass transit, riding a bicycle is preferred by some. Degree of Rivalry: Honda, Toyota, Nissan, and Hyundai have similar vehicles and are routinely compared to each other. Honda makes the Accord, Toyota has the Camry, Nissan has the Maxima, and Hyundai produces the Sonata. All are considered in the same class. Marketing of the companies themselves, all indicate they are comparable. The degree of rivalry continues to increase as new technology develops, environmental concerns rise, and the economy challenges the market.
The automotive industry is considered to be an oligopoly, which helps to minimize the effects of price-based competition. The competition between the companies continues to intensify due to the changes in the economy. The companies use rebates, financing, long-term warranties, and recently the guarantee to make payment or return the vehicle should the consumer lose their job. This is definitely a sign of the times. The automotive companies compare themselves to each other. In their advertising campaigns, the companies point out the weakness of the other company and stressing their strength compared to the other companies.
The American market is Honda’s largest contributor. As the economy continues to be in turmoil, Americans are turning to Honda for their small, low-maintenance and more fuel efficient vehicles. The organization has a firm hold on hybrid and fuel cell vehicles, such as the Civic and Accord Hybrid models. Honda has a limited product line, focusing on low-powered automobiles. They focus on their limited products and focus on being the best in the market with these models. Government Impact: Honda’s marketing campaign focuses on safety for everyone.
Honda Motor Company has some of the automobile industry’s best scores on government and insurance industry crash tests. The National Highway Traffic Safety Administration gives several of the Honda models a five-star rating in the front and side crash test. The Insurance Institute for Highway Safety has given Honda top rankings in several crash tests. Honda not only meets the standards of the government safety requirements but exceeds these standards. This is one of the marketing focuses for the company. Impact of Key Stakeholder:
Honda’s policy for dividends is to distribute to the stakeholders after considering the long-term consolidation earnings performance. Honda will acquire its own shares at optimal times to improve the efficiency of the company’s capital structure. The present goal for Honda is to maintain a shareholder return rations of approximately 30%. Below is a graph that illustrates the trend of Honda’s dividend payout: Dividend value and dividend payout ratio Dividends per share: trend S. W. O. T Analysis The SWOT analysis for Honda Motor Co.
is done and the findings are listed below: Strengths: 1. Honda has a unique and innovative technology that makes them leaders in the automotive industry 2. Honda utilizes the Just in Time production approach 3. The models that Honda produces are some of the best in the market with regards to fuel efficiency and low emissions. 4. Several of Honda’s models are rated best in the industry for safety. Weaknesses: 1. Honda has a relatively small scale production 2. Honda has limited models. 3. Honda only focuses on the economy class vehicles. Opportunities: 1.
Design and expand production line. 2. Honda needs to look at some of the new global markets. 3. Continue to improve technology. 4. Continue to focus on safety standards. 5. Continue to lead the industry in environmentally sound products. 6. Continue to lead the industry in fuel-efficient products. Threats: 1. Global economic downturns 2. Upcoming technologies in other company. 3. Global automobile manufacturing alliances. Conclusion Honda Motor Co. , Ltd. is one of the “Big Three” automotive companies in Japan and continues to expand its production across the world.
Honda continues to be a leader in the production of economic, fuel-efficient, low emissions automobiles. The company has received numerous awards for the safety rating of the vehicles. By reviewing Porter’s Five Forces Model and the S. W. O. T. methodology, strategic planning for the Honda Company is formulated. Although Honda has numerous strengths, with the changing economy and the competitive market, Honda will need to expand their products, continue to create new technology products, continue to lead in safety and environmentally sound products, and finally expand their global market.