1.0 THREAT OF NEW ENTRANTS 1.1 Economies of scale Strong financial resources by existing players such as Toyota Australia and Ford Motors Australia enable them to operate on large scale hence enjoys the economy of scale. Foreign based automakers use Australia as their regional hub where they have established manufacturing subsidiaries. These two players have a huge market share with high sales. The whole industry sold over one million units annually with the exports in the excess of $4.4 billion 2008-09 (Manufacturing skills Australia n. d.). 1.2 Brand Loyalty The Australian automotive industry is facing immense competition from Asian automakers.
The dominant players in the market are gradually loosing their hold in the market. Players such as Ford Motors have cut down on their operations in the country as a result. In 2008, the industry manufactured 324 684 units with slightly over 50% (162 728) sold in the domestic market (Manufacturing skills Australia n. d). Ford Motors has been reporting falling sales in Australia in the last several years a clear indication of the poor brand loyalty. The acceptance of new brands in the market especially from China emanates from their fuel efficiency and economy at a time when fuel prices have sky rocketed (Ford motors 2009).
1.3 Capital requirements The cost of setting up a manufacturing plant is way high as compared to other means of operating in the market such as exporting. As a result, only four of the 34 brands available in the country, only four Mitsubishi, Holden, Toyota and Ford have established full manufacturing plants. Although no figures are available on the exact cost of setting up a manufacturing plant, the fact that many players opt fro exporting indicates that the cost is way high for small players (Manufacturing skills Australia n. d).
1.4 AnalysisThe current players in the market face high risk of new entrants from Asia and other emerging economies which export to Australia. Given that the industry is labour intensive, manufacturers have set base in emerging economies is Asia which then export to developed countries such as Australia. The assumed high cost if setting a plant in an automobile manufacturing plant in Australia limits domestic manufacturers while the low tariffs and an open market encourages new entrants into the market through exporting.
2.0 THREAT OF SUBSTITUTES The alternative means to travel by automobiles are by air, water, sea, walking and cycling are all substitutes to travel by car. 2.1 Switching costs The cost of switching to these substitutes is relatively high in the case of air and water due to the convenience and availability of water ways and airports. As such, the limited use and availability of airports and water ways discourages substitution due to the high substitution cost on part of the buyer.
The emergence of health conscious society has encouraged walking and cycling as a healthy and greener alternative to use of automobiles. Walking and cycling have very low substitution cost hence they a direct threat to the automobile market. 2.2 Buyer loyalty Green living is turning out to be a lifestyle for many buyers especially in the developed world. The carbon print of brands has gained a stronger place in influencing buying decision and brand loyalty.