The Automotive Industry
Essay Preview: The Automotive Industry
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The automotive industry is a worldwide industry that involves itself in the manufacture of motorcycles, trucks, vans, buses and coaches among many other products including the spare parts of the above-mentioned commodities. There are many companies involved in this industry, including BMW, general motors, Honda, Suzuki, and Kawasaki among many others.
In the analysis of the above-mentioned industry, I will look at the motor cycles section of the motor (automobile) industry. The motor cycle industry has been in existence in the world for almost over a decade now. The industry has experienced its vicissitudes over the years but its growth over the last two decades has been remarkable. The industry had its lowest performance index during the great depression of 1929-1935 but ever since, it has grown by leaps and bounds.
The industrys worldwide growth in production, sales, and profit margins for the past four years has also been marvelous. Almost all industry players including Harley Davidson, Honda, Kawasaki, and Suzuki among others recorded from modest to remarkable sales within this period of time.
Shifts and price elasticity of supply and demand
Some products are highly responsive to price changes while others are not. In some commodities Low price changes does not make a server change in the quantity purchased, Economists say that the demand for such products if relatively elastic or simply elastic. For other products Substantial price changes, because small changes in the amount purchased, the demand for such products is relatively inelastic or simply inelastic (Mankiw).
This is the general scenario for most normal goods. In the motorcycle industry, the same applies. The elasticity of the entire industry is different from that of specific firms. Due to availability of close substitutes from competitors, firms within the industry face a relatively more elastic demand schedule than the industry one. This is due to the fact that if a firm (company) within the industry chooses to increase its product prices, the demand for its products goes down as consumers usually look for cheaper similar models from the other firms within the industry.
In the view of the industry the industry products are relatively inelastic; this is due to the fact that many products in this industry are luxury goods. The products have some kind of a snob appeal and this is why that even though the prices of products have been rising steadily demand has also increased relatively. A recent survey of the American market showed a statistic trend as the one below (webBikeWorld).
Harley-Davidson 34.8% Honda 23.7%, Suzuki 14.6%, Kawasaki 13.6%
Yamaha 10.0%, BMW 2.3%, Ducati .9% Moto Guzzi .1%
The pie chart below represents this information.
Summary of 2006 U.S. Motorcycle Sales and Statistics
Source: Motorcycle New Blog-WebBikeWorld, 2006
Generally price increases within the industry e.g. arising from a global increase in the cost of raw materials (steel, aluminum, and other metals) does not affect the demand of the industrys products on a global perspective.
To improve on market share every company uses its own strategy. But in any industry there are four core elements of marketing strategy. These four elements are strategies that involve the product, pricing, promotion, and distribution. All firms within the industry seem to employ a different mix of the four elements in order to achieve its growth or industry projections.
Positive and negative externalities:
An externality is ca cost or benefit borne out of an economic transaction to parties not directly involved in the transaction. In the motorcycle industry some of the positive externalities include an increase in technological advancement not only in the industry but also in other industries. Through increased inventions, the technology has become readily available and this has resulted in cheaper products.
The increased revenue arising from the industries exports has been remarkable in many economies leading to advancement in engineering that has had a trickle down effect on most sectors of the economy. Through increased exports, the industry has led to increased foreign direct investments, an increase in foreign exchange reserves for the involved countries as well as currency stability.
In addition, there has been a remarkable reduction in transportation costs, especially in china and India where increased use of motorcycles and scooters in transportation have reduced traffic congestions as well as reducing the public expenditure in transport.
In the same context there has been an increase in negative externalities including smoke pollution, noise pollution, and water pollution as a result of industrial waste among others. Due to the increased pollution, The American Motorcyclist Association (AMA) has announced that the review the Environmental Protection Agency “Letter of Guidance” on the issue of motorcycle-emissions rules has been completed.
The AMA had sought clarification of EPA regulations for “kit” and “custom” motorcycles in use within the country. Under the regulations, a person will be allowed only one kit motorcycle in their lifetime that will be exempt from meeting EPA emission requirements. For custom motorcycles, a manufacturer will be allowed to create and sell up to 24 bikes a year that dont meet EPA emission requirements (webBikeWorld). In addition these bikes will be specifically labeled that they are exempt, and these bikes will be show bikes that will be rarely ridden
Wage inequality:
Wage differentials in different economies, industries, and firms do exist. There are many reasons why these differentials exist. Among the most notable reasons, include the profitability (of the firm or industry), economic development of the country where the firm or industry is located, level of value addition in the industry, as well as the human resource development of the workers in their specific firms or industries. The automobile industry is not unique in any way.
Just like many other industries, the motorcycle industry is characterized by wage inequalities. These inequalities have three dimensions. The first dimension involves different wages for workers in the same firm, e.g. the managers of a certain firm may be paid more than the engineers in the same firm.
A recent example of this was in the Harley-Davidson firm where early this year workers went on a two week strike demanding