Supply_and_Demand

Supply and Demand LaShawn D. Watts Axia College April 18, 2010 The good that I had experience with is purchasing a new car. First, in my Supply and Demand Paper. I will explain factors that could cause possible changes in supply and demand with purchasing a new car. Second, I will determine two substitute that there may be for purchasing a new car. Third, I will determine two complements there may be for purchasing a new car. Last, I will explain how the necessity of me purchasing a new car impacts price elasticity. Factors that could cause possible changes in Supply and Demand Several factors could cause possible changes in Supply and Demand when purchasing a new car. The higher demand for fuel efficiency is driving up smaller car prices. There is also evidence that customers are trading in bigger vehicles for smaller, more fuel-efficient ones are ordering small cars. Another cause that could cause possible changes in Supply and Demand is the maintenance for the vehicles. Some vehicle such as BMW or Mercedes Benz have parts that are only available thru the dealership. However having your service or repairs done at the dealership my mean that parts may be marked up can be two to three times their actual cost.  Dealerships have the highest mark up of any place to buy replacements. If your vehicle is under warranty for that particular problem or part, going to the dealership is fine. However, you can purchase your parts from auto part stores such as Auto Zone and Advance Auto Parts. You will save on the part you purchased and on the labor. . Auto Industry Bailout: There is another way…spur demand! March 18th, 2009 · by Dan Kowal · 1 Comment · automotive sector, spend analysis, supplier management, supply management, supply market dynamics, supply risk We’ve spent a great deal of time discussing the plight of auto suppliers and manufacturers, as well as the potential impact of US Treasury actions aimed at this struggling industry. Of course, this has been a very supply side focused look at the challenges and potential solutions. But as any high school economics student can tell you, demand is the other piece of the puzzle. So in addition to supply chain finance as a tool to unclog the credit markets that are grinding the supply chain to a dangerous halt, perhaps spurring demand is something the government and private sector should be pursuing. Most of the current problems are due to the credit crunch AND the fact that the auto industry’s entire supply chain is built to support 14 million units or so and current projections are less then 10 million, some as low as 9 million! Yes, that’s a drop of less than 30 %, but due to the high fixed cost of auto manufacturing, this is not only all the margin, but the OEM’s cannot cover their cost. This problem then gets propagated down the supply chain. There is another way however - focusing stimulus money on spurring demand. This would require: 1. Tax incentive/discount for buying a car 2. Supporting the credit markets so they can provide the liquidity needed to finance (or lease!) a car This is a win/win, since getting demand back above 12 million units helps the entire supply chain as well as consumers who are already hurting in this current environment. And when you look at the alternatives, addressing supply and demand may even be cheaper in the long run than expensive bailouts. Spurring demand is actually the approach some other countries are taking. And they’ve posted some positive results. Germany, a country with a long, proud history of auto manufacturing, has implemented a program that gives people with cars over 9 years old €2,500 if they buy a new car. Sales of small cars have risen significantly, making this an effective incentive towards “greening” the cars on the road (before the next gas price hike even hits). GM owned Opel, for example, reported an unexpectedly large increase in sales last month: “This is our best month for five years,” said Opel’s sales manager Thomas Owsianski. The company said that it had introduced extra shifts at its Eisenach plant in order to cope with demand, which had risen to three times the normal level. I think it’s important to note that like the US, Germany’s government and citizens do not want to “nationalize” the auto industry. Their efforts are meant to help a struggling industry and it’s workforce (Opel alone employs 26,000 people in Germany). The government is willing to give credit, but not buy the car companies. Sound familiar' Is it time for the US government to take an approach that addresses supply AND demand' Dan Kowal is Vice President of Strategy & Sourcing Services at Ariba. Dan has over 20 years of combined industry and consulting experience in strategic sourcing projects, with a particular focus in purchasing, supply chain, logistics, and operational transformation and turnaround in the automotive industry. SUBSTITUTES FOR CARS 1. Taxi Cab (public transportation)longer distance, walking, bicycling for shorter distance 2. Bus Complements 1. Gas- Without gas the car cannot operate at all and the majority of gas is used for automobiles. 2. Tires- Without tires the car cannot move. Most tires are made for vehicles. Price elasticity Gas-for gasoline, however, appears to be relatively “inelastic”—that is, when prices change, there is relatively little change in the quantity demanded. This is why, when the world supply of petroleum changes, very a very large change in price is usually needed to bring supply and demand into balance. Supply and demand chart under inelastic demand looks more like this: Copyright (c) Lars Perner 1999-2008. GASOLINE PRICES, CONSUMERS, AND THE ECONOMY Lars Perner, Ph.D.Assistant Professor of clinical Marketing Deparment of Marketing, Marshall School of Business University of Southern California, Los Angeles, CA 90089-0443, USA Rev. August 11, 2008 If gas is high the sales of trucks or vehicles that are not good on gas will affect the sales and consumers will purchase hybrid vehicles are compact cars. Although a vehicle is a necessity, there is so much room for price elasticity. For cars it would work the other way. In a short period of time, if car prices go up, people can just keep driving their old clunkers. That is, the cars already on the road are substitutes for new cars. But in a longer period of time the old cars wear out and the elasticity of demand is less. Having a vehicle is a luxury and most people know it. Having a vehicle, means that you can get to your destination on time, you can make several stops and still arrive to your destination. You can pick up people, drop them off 1. Supply and Demand: Small Cars Command Bigger Prices | BNET Auto ... Jul 7, 2008 Shifts and price elasticity of supply and demand As any field of production, automobile industry tendencies are being determined by the demand and supply curves and their combination. The general rule is the same – the higher the price grows, the less people are inclined to buy, but the more manufacturers are willing to sell; vice versa – the lower the price falls, the less the firms wish to trade and the more enthusiastic the consumers become. The overall balance is being supported by the variations on the two curves. Elasticity is actually an indicator that demonstrates how much the market will react to the shift of price by a certain degree. It is common knowledge that the modern world is mostly demand-driven. That is why the elasticity of demand is the issue to be analyzed below. An elastic demand shows that even the minor increase in price shall lead to the significant reductions in the demand for the products. An inelastic demand would mean that the quantity sold would not much depend on the shifts of the price. The amount of car manufacturers and dealers is rather significant. There are hundreds of models... References industry.bnet.com/auto/.../supply-and-demand-small-cars-command-bigger-prices/ - www.consumerpsychologist.com/gasoline_prices.htm