Toyota Porter’s 5 Five Forces (2021)

Toyota Company Overview:

Toyota is one of the leading automobile companies in the world, founded in 1937 by Kiichiro Toyoda as a spin-off from his father’s company Toyota Industries to create automobiles. By 1939 they had produced their first car, the Type A Engine. It was the best-selling vehicle in Japan at this time. The company actually used the car to assist in the war effort during World War II. They also produced the first Diesel engine in 1938 which was used extensively by the military. This led to the production of more passenger cars after the war because it had established itself as a manufacturer of reliable, economical cars. Today they are one of the largest automobile manufacturers selling around 9.75 million vehicles in 2015. They sell their cars under the Scion, Lexus, and Toyota brands with the latter brand being the best selling of all.



Toyota Competitive Rivalry:


Toyota competes with a wide range of companies in the automobile industry. They compete directly with Honda, Nissan, and Volkswagen AG as well as General Motors and Ford in North America. The company is very profitable which has led to aggressive competition in order to capture market share. This has resulted in price wars, incentive wars, and the development of new vehicles.



Toyota Bargaining Power of Suppliers:


Toyota has some bargaining leverage with its suppliers because it is such a large company making it the biggest customer that it will ever have. This means that they are willing to provide what Toyota needs at lower prices than other companies would get in order to keep their business. If Toyota were to switch providers it could become very expensive for them which would hurt their bottom line enough to make it unprofitable. If the suppliers were to raise prices they would most likely lose Toyota as a customer because of the massive size and influence they have, so there is no real danger in this situation.



Toyota Bargaining Power of Buyers: 


Toyota has the highest market share in the USA at 29.3% which is almost twice that of its next closest competitor, Honda. This means that there are many people who would be interested in their vehicles making it so they have a lot of bargaining power with their customers. Toyota buyers are willing to pay more for the brand name and reputation that it has built up which makes it difficult for other companies to compete with their prices.



Toyota Threat of New Entrants:


The automobile industry is capital intensive which prevents a lot of new entrants from trying to break into the market. It also requires significant investment in R&D and manufacturing facilities to create competitive vehicles. There are many laws in places that protect companies from the competition as well such as CAFE standards, emission standards, and safety regulations contribute to the difficulty of surpassing Toyota in the US market. The Japanese yen has weakened which will reduce costs for foreign companies entering the Japanese market, however, it is still more expensive to produce in Japan than overseas.



Toyota Threat of Substitutes:


This threat is very minimal because there are so few realistic alternatives to Toyota vehicles at this point. People who might consider other brands would probably not even consider it if they tried to switch at the dealership. This is because Toyota has such a strong hold on its customers which makes them almost cult like in their support of the company and brand.


Porters Five Forces Conclusion:


Toyota faces a number of threats and opportunities in the global automobile market. The main threats come from the competition, the threat of substitutes, and the bargaining power of suppliers. The main opportunities come from the growth in emerging markets and the weakening of the yen. Toyota has a strong competitive position and is able to use its bargaining power over suppliers and buyers to maintain a high level of profitability.




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