Auto Industry Competition

[Name of the institute]Auto Industry Competition

Why the 'mass market' segment of the auto industry is currently considered 'unattractive' in terms of its profit potential

If we describe the intensity of competition in automobile industry then it can be said that the competition is of cut throat level. However, it is imperative to consider that the intensity of competition varies from segment to segment. There are three segments in the automobile industry mass market, luxury and ultra luxury segment. Out of these three segments the competition seems to be dwindling and potential of profit appears to be very low and unattractive. The focal reason behind this is the incentive per vehicle. For a mass carmaker on an average it takes $3,400 for top three carmakers to move their cars. Not only that but, in the year 2007, the Saab automobile broke the record and spend almost $6,200 on incentive per vehicles. When a carmaker breaks the record of amount that they spend as the incentive per vehicle then it disrupts the profit margins of the industry as a whole (Mike, 2008, 33).

Another indispensible reason behind the unattractiveness in terms of the scale of profitability is that there are more players in the mass market of the auto industry. When there are scores of competitors in the one single segment then there remain fewer chances to attain huge profit margins and profit margins remains the same (Mike, 2008, 33).

There is one more important reasons that needs to be highlighted here is about the production capacity. The mass carmakers have capacity to produce more number of units then they need. When the number of produced units are more than the needed then manufacturers prefer to sell out these units in any way. In this case manufacturers do not attempt to indulge in marketing g activities to promote their production and sell cars at higher prices. They do not do that because it would further increase the cost and the risk of selling and not selling those manufactured units would remain the same. Therefore, the level of profit remains low or same. As a result of the more production capacity than needed and more factories the manufacturers want to close down the extra capacity space. In order to cut the cost and increase profits the only option that the mass carmakers have is to close down unneeded plants. Manufacturers are willing to do that and it is the most important strategy in their list but they cannot operate and implement this strategy because of the political resistance. Policies and government intervention impede the way to close down the plants because of the economic devastation that this action would create such as job loss (Jack, 2012, A-1).

Reason behind High Profitability in Luxury and Ultra Luxury Segment

One of the most principal rationales behind the high profitability in the segment of luxury and ultra luxury cars is that there are fewer players in these two segments. On the basis of USPs of their products ...