Wednesday, December 4, 2019
Economics-Increasing Demand Rate of the Car-Free-Samples
Question: Explain, providing appropriate examples, why car manufacturers are constantly introducing new models. Answer: The demand for car is increasing day by day as people are using this vehicle to cover a long distance within a short time. Hence, in both developed and developing countries, people are demanding cars as a necessary commodity. The principle concept of this essay is to analyse the reason that why producers of car are constantly introducing new models. There are various reasons behind this. Manufacturers are making new cars with new technologies to meet those criteria, which consumers are demanding. Hence, in this context, concepts of benefit of the consumers, costs of producers and market structure of the car industry are some important aspects, which should be discussed in this essay. New models with new designs and technologies can attract consumers. This concept also helps a car manufacturer to compete with other competitors. The chief way to analyse this situation is to observe various models, which are introduced by different leading car manufacturers and basic economic concepts t hat support this view. After analysing these concepts, it will be seen that some models have sold with a huge demand, whereas, some models could not compete in the market. Hence, at the end of this essay, it will be discussed that what kind of updates are required in future. As technology is improving day by day, the car manufacturers can also incorporate these innovations in their model. There will be different charts and diagrams, which will reflect the trend of a car manufacturer in the market. Automobile industry is rapidly expanding their business in recent years. Different car manufacturing companies are introducing new models of cars to meet the raising demand of customers. Customers expectations on a car are chiefly based on the quality, safety, utility and reliability. Producers are trying to introduce new models based on those criteria. At the same time, producers can earn higher level of profits by selling new models of car with high prices. However, at the same time, overcapacity has created pressure on the auto industry to control the price of vehicle. Due to environmental concerns, the chief agenda of a manufacturer is to look after various matters, like, emissions of tailpipe, production of carbon dioxide and recycling. One of the growing issues is urban congestion all over the world that effectively decreases the usage of cars among different cities. These challenges lead the auto industry to innovate and introduce new models of cars. General Motors of U.S made different types of cars based on different demands of their consumers. The chief focus of a car producing company in U.S is to look after the speed, safety and comfort of consumers. Moreover, suspensions, interiors, stylish bodies and chassis of cars are also some important factors to introduce new models of cars. Car manufacturers have earned major importance in the automotive industry, worldwide. They have taken some primary responsibilities related to development of products, manufacturing and engineering because of some critical systems in the industry. The automotive manufacturing industry in Australia has faced various difficulties for which it needs to introduce new models of cars. The reason behind these difficulties is that, in Australia, motor vehicle producers are not able to survive in a highly competitive world market and domestic automotive markets. Some well known car manufacturing industries, like, Ford, Toyota and Holden have declared that before 2017, they will ce ase local productions. The chief reasons behind producing new models of cars are benefits, costs and market structures, within an automotive industry. In this context, some articles related to economics can be analysed. These will help readers to understand the economical reason behind producing new models of cars. According to an economics paper of Safiullin, Ismagilova, Gallyamova and Safiullin, consumer surplus is an important concept of benefit. According to Alfred Marshall, a consumer is ready to pay price for a commodity or service, when he or she gets benefits from it (Safiullin et al., 2013). In an economy, a consumer can pay higher prices for a commodity if he or she gets higher benefits from the product. However, the market price can be lower than that price, which the consumer wants to pay. Hence, the difference between these two prices is called consumer surplus (Xie Lin, 2017). In this car manufacturing industry, the consumer can pay higher prices if they get higher benefits from the new mode l of car. Fig1: Consumer Surplus Source: (created by author) In the above figure, the difference between P1 and P0 is the surplus of the consumer. Here, a consumer can purchase a car by paying P1 price, if he or she will get higher benefits from that car. However, the market price is P0, which will be paid by the consumer. Hence, under this situation, a consumer can also get benefit through surplus. Cost is another important factor, which greatly influence any production process. Under an automotive industry, manufacturers are very concern about their cost pattern. There are various in built steps to produce a car. Production cost refers those cost, which a manufacturing industry bears at the time of production of a good or service (Farahani, Rezapour, Drezner Fallah 2014). This cost includes wages of labours, prices of raw materials, land rent, interest of capital, advertisement costs and general overhead. Moreover, any taxes imposed by the government are also considered as production cost. Hence, production costs include all expenditures related to production or creation of goods and services. Producers experience product costs, which are related to both the materials that require for creating an item and labour to create it. In an automotive industry, the direct production costs are materials that is, plastic, tire, metal materials and so on. Hence, it can be seen that, ther e is a huge cost burden of a car manufacturer to produce a car. Hence, they also charge a huge price for each unit of car. This leads to increase the price of that durable commodity. Consumers do not want to buy old models or new cars with same features with high prices. However, consumers can purchase cars with high prices if the manufactures make new models of cars with new features. New models with high demand can decrease the burden of cost of a producer. In this regard, an important point is needed to be mentioned. The point is that, when the cost of car manufacturing increases, the selling cost may also increase at the same time. Australia is one of the few countries that can design and manufactures cars with significant volumes (Andersson, Sderman Sandn, 2017). The Automotive industry of Australia can be divided into two parts, which are interrelated with each other (Malihi Shee, 2017). These are the production sector and sales sector of cars and both of them are equally important for this car manufacturing industry of Australia. Manufacturing sector implies the market conditions under which the manufacturing business of Australia operates. It produces vehicles and other products that are related to those vehicles and the chief motive of this industry is to make profit. On the other side, sales sector implies a market situation under which various car manufacturing industries compete with each other to sale their cars. However, it is very important to differentiate between these two market conditions as these two markets operate within two different market structures, competitions and business strategies ( Pisano, 2017). The only market structure, which can describe the manufacturing sector of the automotive industry in Australia, is oligopoly (Hashmi Biesebroeck 2016). There are chiefly two companies who produce cars in Australia. These are Ford and Holden. Hence, the method of competition and strategies related to price are based on the oligopoly criteria. In an oligopolistic market, level of competitiveness and profitability are highly correlated with each other. On the other hand, the selling sector of automotive industry is based on the market structure of monopolistic competition (Harrison, Rutherford Tarr 2014). All car manufacturing industries are based on product differentiation by making different models of cars. Hence, they try to sale their cars by using different technologies. Toyota Motor Corporation is a multinational automobile manufacturing company of Japan. It is one of the leading car manufacturing companies all over the world. The company has launched various models of cars since the beginning of their business. Some of the best selling models of Toyota since 2016 are Toyota Camera, Toyota Corolla, Toyota RAV4, Toyota Tacoma and Toyota Highlander. Fig2: Toyota Models Selling Amount in 2016 Source: ("TOYOTA MOTOR CORPORATION GLOBAL WEBSITE", 2017) In 2016, Toyota has dominated the car market of Australia. Three models of this company were included among the top five bestselling car companies in this country. Fig3: Sales Volume of Small cars in Australia in July 2016 Source: (Malihi Shee, 2017) The automotive industry of any country is vast and dynamic by its nature. Developing countries chiefly depend on their domestic automotive industries for the opportunity of economic growth as it has important linkages with other industries. The industry has gone through several stages. These are craft production, mass production and lean production. Under those stages, some small enterprises as well as large industries establish some standard products and business strategies. Ford and Toyota started a new line of production and design of cars. Under car production, mechanisation has been transformed since past century that was led by the fastest speed with lower costs. The mass production system of Ford lied on standard designs with fully automated and interchangeable auto parts. On the other hand, the lean production system of Toyota led productivity to a new dimension by introducing pull system instead of push system. That means, instead of producing huge amount of vehicles and pus hing them towards the dealer for selling, they started producing their cars based on consumers immediate demand. Product innovation or introducing of new models in the automotive industry has chiefly based on the demands of customers (Damert Baumgartner, 2017). However, product positioning is a vital strategic variable for any car manufacturer. General Motors started producing different types of vehicles for different product segments. It ended the market of Ford with low price model. The ability of product variation on different dimensions is the chief strategic variable of any automotive car industries. However, the chiefly responsibility of automotive industry in U.S.A is to make cars based on customers satisfaction (Eilert, Jayachandran, Kalaignanam Swartz, 2017). On the other hand, the automotive industry of Europe has focused on their chief attentions on performance and ability to move easily and quickly of their vehicles. These are radial tires with steel-belted, fuel injection, disc brakes and turbo diesel engines. In Japan, the automotive producers are trying to produce different typ es of cars because of their miniaturisation culture, scarcity of materials, fuels and space. Industrial innovations have taken place over the last few centuries. The manufacturers of car industry incorporated some critical components of production to minimise transaction costs related to late deliveries and products, which are not produced with exact specifications. Under the automotive industry, market rivalry is based on two strategic variables. These are quality and product variety on the one hand and transaction price to increase sales, on the other hand. Maintaining high level of customers repurchase rates is important for an industry to earn high profit. Hence, the car makers try to attract and keep their customers with them by innovating new features of cars. Therefore, product variation is the major important concern of all small and large size car industries. However, some auto makers are well known in a particular market segment, for example, Mercedes, BMW and so on. The hallmark that Japan makes in their car is reliability on turnkey. On the other hand, Ford, Toyota and Chevrolet have launched small and sporty cars for their buyers. Analysts of automotive industries argue that major geographical and organisational changes influence this industry to innovate new technologies and reconfigurations on the basis of demand, based on environmental concern (Wagner, Ortman Maxfield, 2016). Each car manufacturing company tries to capture the international market by selling their cars worldwide. Hence, they are trying to innovate new models that can be suitable for all countries. In conclusion, it can be said that car manufacturing industry is one of the largest industry and it can deeply influence the economic system of a country. The chief motto of a car manufacturing industry is to produce different types of cars with different facilities that can influence their customers positively and they can earn huge amount of profits. Demands of customers are the first priority for those industries. Hence they always try to innovate new models of cars with new technologies that can satisfy a consumer. Safety, comfort, stylish body are some basic features that each consumer needs. They can get consumer surplus if new model are introduced in the market with large number of features. Then, they can buy it with a higher price. At the same time, producers are trying to reduce their cost structure. New technologies, substitute materials with lower prices can reduce the cost burden of a car manufacturing company. On the other hand, market structure is also an important con cept which should be kept in mind. Different countries have different market strategies for automotive industry. The automotive industry operates their functions chiefly under a monopolistic competitive market. Hence, product differentiation is a very important concept. They can differentiate their products if they launce new models with different new technologies. Therefore, it can be seen that introducing new models of cars is very important for each car manufactures compete and stay within this industry. References: Andersson, M., Sderman, M. L., Sandn, B. A. (2017). Are scarce metals in cars functionally recycled?.Waste Management,60, 407-416. Damert, M., Baumgartner, R. J. (2017). Intra?Sectoral Differences in Climate Change Strategies: Evidence from the Global Automotive Industry.Business Strategy and the Environment. Eilert, M., Jayachandran, S., Kalaignanam, K., Swartz, T. A. (2017). Does It Pay to Recall Your Product Early? An Empirical Investigation in the Automobile Industry.Journal of Marketing,81(3), 111-129. Farahani, R. Z., Rezapour, S., Drezner, T., Fallah, S. (2014). Competitive supply chain network design: An overview of classifications, models, solution techniques and applications.Omega,45, 92-118. Harrison, G. W., Rutherford, T. F., Tarr, D. G. (2014). Increased competition and completion of the market in the European Union: static and steady state effects. InAPPLIED TRADE POLICY MODELING IN 16 COUNTRIES: Insights and Impacts from World Bank CGE Based Projects(pp. 361-394). Hashmi, A. R., Biesebroeck, J. V. (2016). The relationship between market structure and innovation in industry equilibrium: a case study of the global automobile industry.Review of Economics and Statistics,98(1), 192-208. Malihi, K., Shee, H. (2017). STRATEGIC VEHICLES IMPORT SUPPLY CHAIN: A PARADIGM SHIFT IN AUSTRALIAN AUTOMOTIVE INDUSTRY.Asian Academy of Management Journal,22(1). Pisano, G. P. (2017). Toward a prescriptive theory of dynamic capabilities: connecting strategic choice, learning, and competition.Industrial and Corporate Change,26(5), 747-762. Safiullin, L. N., Ismagilova, G. N., Gallyamova, D., Safiullin, N. Z. (2013). Consumer benefit in the competitive market.Procedia Economics and Finance,5, 667-676. TOYOTA MOTOR CORPORATION GLOBAL WEBSITE. (2017).TOYOTA MOTOR CORPORATION GLOBAL WEBSITE. Retrieved 16 December 2017, from https://www.toyota-global.com/ Wagner, A., Ortman, S., Maxfield, R. (2016). From the primordial soup to self-driving cars: standards and their role in natural and technological innovation.Journal of The Royal Society Interface,13(115), 20151086. Xie, F., Lin, Z. (2017). Market-driven automotive industry compliance with fuel economy and greenhouse gas standards: Analysis based on consumer choice.Energy Policy,108, 299-311.