Essay about Economics of the Automobile Industry

There are many products and services available in the market today. The automobile market is no different. There are many brands, styles, and price ranges when it comes to vehicles. One specific area of the automobile market are trucks, more specifically is the Ram truck. Dodge Ram has been around since 1981. Truck sales have hit an all time high since 2007 proving that fuel prices are not affecting sales as much (Ross, J. 2013). The big three, Ford, Chevy, and Ram continue to fight each other in the truck selling business and have cut-throat marketing to try to be the best and on top of truck sales. Ram has gotten rid

90) Since 2004 the demand for gasoline has been constant and the price of gasoline has continued to rise, causing gasoline expenditures to rise astronomically. However, given that an acceptable substitute for gasoline does not exist, consumers are unable to cutback on the amount of gasoline being consumed. The article suggests that some reasons for consumers’ inability or unwillingness to cutback on the consumption of gasoline are long commutes, the use of vehicles which are not fuel efficient and a lack of alternative solutions such as carpooling and public transit options. The law of supply also suggests that if a firm cuts back on the amount of a good being supplied, the cost of cutting back outweighs the cost of continuing the supply.

Given the current economic climate, I think the automotive industry is going to be faced with a multitude of economic challenges in the next five years. As an oligopoly market, the auto industry is highly dependent on strategic decision-making, and the demand for dynamic innovation and supply at decreased-cost levels. Competition, possibilities of turning substitutes into compliments, and shifts toward higher demand in services are seemingly leading factors that face the current automotive industry in the immediate future. But first, we should not ignore the political forces at play within the market.

In conclusion, the consumption of cars creates both positive and negative externalities. However the negative externalities it is more than its positive externalities so producers tend to overvalue and over produce. The government tries to intervene by imposing taxes on the production of cars. However this is not usually effective as the imposion of taxes depends on the elasticity of the product.The demand of cars is not price elastic.

The automobile industry has brought the United States economic growth due to the impact that automobiles have made on society. There has been a plethora of jobs associated with the auto industry, including manufacturing, auto repairs, insurance, and the development of roads, sales, and auto parts to enhance vehicles. Cars, trucks, and SUVs’ have become a way of life for people and have made an additional economic impact by becoming the primary means of transportation for consumers to commute to and from work, vacations, and travel between destinations. Most family households live on a budget and they must make the decision of how much of their budget they can allocate to transportation costs.

While new trucks and cars emit about 90 percent fewer pollutants than they did 30 years ago total annual vehicle miles driven have increased by more than 140 percent since 1970 and are expected to increase another 25 percent by 2010. The emission reductions from individual vehicles have not adequately kept pace with the increase in miles driven. As a result cars and trucks are still the largest single

When the automakers purchase capital goods to produce more automobiles, their demand for workers will decrease since capital goods can substitute autoworkers. Correspondingly, the labor demand curve will shift to the left. In terms of wage level, as the demand falls, it will decrease as well.

their aim to have a nice house, good job, lots to eat and all the

Currently the major issue in the vehicle industry was that car manufacturers were unable to accurately calculate and forecast customer demand. This led to an overwhelming amount of

Demand for cheaper products is high because of economic difficulties. People lose their jobs or have a hard time to find a job. Furthermore, people need an automobiles because it doesn’t only help them move efficiently but

For Eagle motors the price elasticity for cars is affected by substitute products such as public transport, motorcycles and bicycles for example. If more of these substitutes become available, the demand for cars becomes more elastic since customers have more alternatives. A close substitute makes it difficult for a company like Eagle motors to raise prices. In Australia now the use of public transport and other forms of transport like bicycles have increased largely because of the rise in petrol prices. In an already competitive market for cars, Eagle Motors needs to be aware of the increasing petrol prices, and the tendency for consumers to switch to lower cost substitutes like public

Vehicles are a costly thing, so diminished earnings because of high gas costs will entice purchasers to do with the vehicles they have by putting off or even scrapping expected car buys. Substitution happens when purchasers swap one item for another which is practically equal according to the substituting buyer. Hypothetically, some cars that would have been bought are not, and in different cases buyers pick an alternate car than the one they were initially anticipating. In both cases changes in demand are a response to gas costs, pushing down sales of cars in the total additionally moving sales among diverse models.

As the United States unite in the global effort to monitor the use and waste of energy, fuel efficient or hybrid cars such as the Toyota Prius has dominated the market over the SUV’s who once adored every American driveway. With much doubt, in 2004, the Prius has become the leading selling vehicle in America. The sleek design has caught the eye and pockets of many Americans who prefer the “gas sipper” over the “gas guzzler.” (Kotler & Armstrong, Principles of Marketing, 2010)

The automobile industry plays an outsized role in the economy due the industry’s cyclicality and the multiplier effect. For instance, a gearbox is purchased from a supplier that has to employ labor, purchase raw materials such as, copper, steel, wire, and other related components and services to support the activity. All of these parts are in turn purchased from other suppliers with costs to support their businesses. Therefore, as each supplier purchases components and services that they need, an increasing propensity to consume and invest in the economy raises.

A second point of consideration relating to the intensity of rivalry within the industry was the level of industry demand. “Demand declines when customers are leaving the marketplace or each customer is buying less” (Hill &Jones, 2012, p. 62). This was the case in 2009 in many developed nations due to the recession, which was marked by job loss, credit problems, and high gas prices that increased the demand for fuel-efficient vehicles or left consumers unable to purchase vehicles altogether. At the same time, growth was expanding in China and some other developing nations, which opened the doors for automobile companies in these countries to expand at home and