Car Manufacturing Industry Case Study

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Question 1: Barriers to entry
Entry into the car manufacturing industry involves overcoming steep barriers; car manufacturing is a highly capital-intensive market, thus forcing new entrants to acquire large sums of capital simply to enter. This capital goes into purchasing a manufacturing plant, sophisticated equipment, raw materials and supplies, and the development of extensive supply chains. (MarketLine, 2015) Additionally, car manufacturing firms must invest in research and development. In economic terms, this last item is deemed a sunk cost because the firm must undergo the research and development/engineering expense prior to even selling a single vehicle. Other significant sunk costs come in the form of marketing campaigns. On the …show more content…

However, their susceptibility or elasticity greatly depends on time frame. In the short-run, buyers tend to be more price elastic because they can opt to delay purchasing a vehicle. As a result, in the long-run these consumers are less elastic. Furthermore, buyers enjoy a plethora of choices, or substitutes, and therefore can easily switch firms. Therefore, buyers have substantial leverage over automotive manufacturers and exert a downward pressure on prices, as well as demanding better service and quality. However, it is important to note that automobiles are both a need and a want, depending on the situation of individual buyers. For instance, for a rural Canadian, public transportation may be difficult to acquire and therefore might constitute personal vehicles as a need; conversely, for someone residing in a metropolis like Toronto, a vehicle may be deemed …show more content…

The market shares of the various companies are separated with Honda Canada Inc. enjoying a 13.9% of the market share, Toyota Motor Corporation, 27.5%, Fiat Chrysler 8.2%, Ford Motor Company of Canada Limited 17.9%, and General Motors the highest at 31.0%. These firms combine to form a market share of 98.5% of the Canadian car manufacturing industry, with the remaining categorized under “other”. (Ruiz, 2015) As a result, there are few competitors in the Canadian car manufacturing industry. Other automakers, including Mazda, Volkswagen, and Nissan, all have distribution channels and retail presence in the Canadian market, but lack a manufacturing presence. Thus, the Canadian car manufacturing industry competes with other entities in the distribution and retail aspects of business, but not with regards to manufacturing vehicles in

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