Porter’s Five Force

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Threats of New Entrants:

Capital investments tend to be high for a new market entrant to purchase cars
The cost of hiring experienced employees or train new employees can be costly
The auto industry, in general, is based on a depreciating asset and combined with the fact it is a declining industry, deters new entrants who are inexperienced
A relatively large dealership lot can be costly to showcase and store cars

Overall: Weak

 

Bargaining Power of Suppliers:

As the automotive industry is a declining industry in general, the number of suppliers is limited and also declining
The number of suppliers for cars has been shrinking, and suppliers are competing to remain in business, which gives them little power
As California is one of the states that heavily rely on cars for transportation, suppliers have the desire to remain competitive and operate in the state. This gives the bargaining leverage to dealerships since lot spaces are limited
As owner auto sales are becoming easier due to websites and services such as Craigslist and Offerup, competition is increasing. So, this leaves suppliers with a more difficult position to compete

 

Overall: Weak

 

Competitive Rivalry:

According to independent research, because of robust intra-brand competition by these independently owned and operated dealerships, consumers regularly save hundreds and often thousands of dollars on the purchase of their new cars.
Each of these local dealerships has access to dozens or more lenders and can provide competitive financing, often helping customers find better financing rates than the rates customers can secure themselves. In fact, through a local dealership, customers can sometimes get a better rate from their own bank than they could on their own.
Because of websites like Carmax, Craigslist, and Facebook market, consumers are able to compare prices of different cars easily and quickly to have the ability to know the accurate market price of a car. This makes the profit margins slim and increases competition
Marketing budgets have been increasing significantly to increase the competitive edge between dealerships

 

Overall: Very Strong

Threats of Substitution:
Some people prefer new cars to use, however, these are much more expensive
Rideshare companies such as Uber and Lyft make owning a car less necessary
Increasingly environmentally conscious market – emphasis on riding bikes/ carpooling/public transport/ other alternative forms of transportation
Owning a car is often more expensive than these alternatives, and can provide extra hassle
Owning your own car is typically perceived as being better than alternatives, comes with a sense of pride in our society that cannot be matched
Buying a car can be seen as more of a commitment than alternatives

Overall: Weak

Bargaining Power of Buyers:
A large amount of buyers -1 million+ households in OC – an average of 2 cars per household in CA
Having a personal car is important to a lot of people, which increases the demand
Without an internet presence, market size is drastically decreased
Other dealerships offer websites which draw many would-be customers away
Our products are historically reliable and fair priced according to current market
Generous payment plans and access to premier lenders make higher-priced cars affordable to the public

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