If the cost of the raw material (Steel, Spare Parts, Rubber) increases there will be an increase in the cost of production leading to decrease in profit margins. The higher the amount of debt in a company, the higher it is exposed to risk of bankruptcy. Just fill out the removal request form with all necessary details, such as page location and some verification of you being a true owner. For e. g. Maruti has used its available wide service network as point of difference over competitors. As per the new construct, steel manufacturers had to pay to their suppliers based on prices that got reviewed every three months. The third category of manufacturers like Ferrari is entirely focussed on product differentiation and offer unique product propositions to the consumers. Valuation Estimates While manufacturers ruled the supply market earlier, emergence of retailers has given the latter substantial power in the industry. The Local Bodies are empowered to levy tax on properties (buildings, etc. It is an indicator to economic growth in real terms because healthy and growing automobile sector indicates overall growing economy, agro-economy, good roads, rising income and employment. General Motors was one of the most reputed companies of USA at one time and it was doing extremely well financially. One of the most prominent factors affecting the global automotive industry is the looming prospect of a no-deal Brexit. After filling out the order form, you will be directed to payment via Credit Card or another preferred method. Get the knowledge you need in order to pass your classes and more. Presence across Segments Manufacturers with presence across various product segments can ensure higher volume and better capacity utilization by using the common manufacturing capacity. 5| 100/60/12. The revision can either increase or decrease labour cost. Differentiation strategies work in this market. If government policy favours labour and leads to higher wages, it will have an impact of reducing supplies. According to MarketLine, the industry’s yearly growth rate is expected to exceed 5.5% from 2010 to 2015, reaching a value of more than $5.1 trillion by 2015 (Report Linker, n.pag.). "Microeconomics Of Automobile Industry Research Paper Examples." Customs Duty Customs Duty (Import duty and Export tax) is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Estimated: Automobile industry is competitive for the suppliers. Advertising And Marketing Due to the advertising techniques adopted by all the manufacturers in the CC-Segment the sales have risen drastically. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the automobiles are manufactured. The proportion of total income that is spent on essential items has also been declining over the years. Growth in the industry has been accelerated due to various factors. As the market is oligopoly, differentiation strategies work in the market and can boost demand. Ownership: 80,000 crore by the year 2007. In 2018, the U.S. automotive industry contributed 2.7% to U.S. gross domestic product.That's $545.4 billion out of the total $20.5 trillion produced. 3-Month Another major economic factor of auto motive industry is taxation. ), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities. Cars being aspirational products, purchase decisions are influenced by the overall economic environment. The companies are tying up with the financial institutions having rural presence to provide additional financing options to customers in such areas. 2. Higher the competition in the industry lower would be the profit margin. Kd(BT): chapter 1. introduction to managerial economics 1. what is managerial economics? Apart from policies, upward revision of labour is also determined by competition of labour among firms. The objective of this paper was to understand the microeconomics of the automobile industry. The share of exports from domestic production is currently at 12-13%, which is much lower than current export hubs. Web. A trend has been emerging of migration from rural and upcountry areas to cities for better economic opportunities. 77% in 1992-93 to 5% in 2006-07. 8.50% -0.08% Cost of labor is another important factor. As the law of demand also states that with an increase in price the demand of the commodity decreases and vice versa. “What is Microeconomics?” About.com, 2013. The Automotive Industry and the Environment: A Technical, Business and Social Future. 06 Feb 2016 2. Fiat Chrysler and Renault’s attempt to join forces was a response to turmoil in the auto industry, which accounts for much of the world’s factory jobs. The industry is making a contribution of 17% to the kitty of indirect taxes of the Government With all the policies regarding the FDI and Tariff barriers as mentioned above, it has become easier for the foreign players to enter the Indian automobile industry. All these factors lead to higher cost of production and adversely impact supply of automobiles. Haven’t found the relevant content? The Commission also works on noise reduction and the elimination of fluorinated greenhouse gases used in mobile air-conditioning systems. The greater the difference between the MES and the entry unit cost, greater is the barrier. Economies of scale are becoming increasingly important as competition is driving the profit margins to lower levels. The more the quantity changes, the more elastic the good or service. 1b) The Opportunity Cost Of The Car One Drives Is One Of The Biggest Financial Decisions To Make In Life. ID Recently the government has reduced the custom duty on inputs and raw material from 20% to 15% which has increased the supply. 4. Internet is being used as an important marketing and retailing platform. 0.0233 A Market Equilibrium is achieved at the point of intersection of the demand line and the supply line. There are examples of Indian suppliers becoming single source global suppliers for leading OEMS (GM and Ford), and also becoming global leaders with Sundaram Clayton receiving the Deming award but there are few drawbacks as shown by A. T, Kearney survey which found that defect rates in India are in the range of 1000-2000 ppm against Japanese average of 100-200 ppm * The rising gasoline price is bound to influence the buyers Taxation India has a well-developed tax structure. Government Policies and Taxes If there is a change in the government policies regarding the increase in the road tax charged or the tax which is to be paid per unit sold, the supply of a car will fluctuate with the nature of the change. The industry that has been chosen for this study is automotive industry for two reasons. The automobile production industry in the United States is in a clear state of turmoil, particularly in the case of domestically owned firms. Efficient Operations Competition in PV segment is very intense and this requires the existing players to initiate steps to reduce their cost of production. Types of Excise Duties Basic Excise Duty: This is the duty leviable under First Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. GM sold eight different brands of cars – Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab and Saturn at one point of time (Davis, n.pag.). Business Reference Services. As derived from the GM illustration, high leverage also adversely affects supply as it can lead to bankruptcy. Since, in the compact car segment market even there are very less competitors there is stiff price competition. 13 A.. A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it. New Offerings Car sales increase when a new model hits the market. 81% Cost of Capital Est. Meanwhile, the Chinese auto industry itself is "ripe for consolidation," says Humphrey. These fragmented markets are said to be competitive. Web. ROA: As the product proposition was lucrative to customers, they naturally shifted their preferences to Toyota and market share of GM declined. Demand and supply refer to the relationship price has with the quantity consumers demand and the quantity supplied by producers. By studying various demand and supply factors affecting the automobile industry we can conclude that an upturn or downturn in this sector is due to an aggregate effect of multiple factors. 2013. Access to Latest Technologies Indian PV segment is highly competitive with as many as 14 players operating in it and more than 80 models on the offering. Managerial economics = the science of directing scarce resources to manage effectively > each needs to understand how they. Demographic Drivers. The microeconomic demand factors that affect the automobile industry are purchasing power and affordability of households, availability of financing options, price of fuel (oil and gas), product promotion, demographic changes and availability of substitutes. As productivity increases cost of production decreases and supply increases. 2003 An important case study in microeconomic factors affecting the automotive industry was the rise of Toyota and relative decline of General Motors in the early twenty-first century. “Microeconomics: Microeconomics in Action”. 10-Year Drawing on industry interviews, six interconnected socio-technical factors are identified that guide the vehicle design and manufacturing process. Some examples of advertising and promotional strategies used by marketers are celebrity endorsement, old car exchange offers and offering cheap in-house financing options. The mere size of the market makes it an interesting topic of study. 3. 7. The objective of this paper is to understand the microeconomics of the automobile industry. The key microeconomic factors affecting supply in automobile industry include cost of production, technology position, competition and product penetration. Total Sales Trend of Four-wheelers in India Demand Factors 1. Financing Options Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. 2013. Price of the Car Price of the car is one of the major factors that affect the supply as well as the demand of a car. The fourth section concludes the paper. Automobile manufacturers compete with each other on price, product, advertisement and marketing differentiation strategies to make their place in the industry. Economics & Business Journal: Inquires & Perspectives, 1 (1), Oct 2008. Second, the number of brands offered by GM was high. -0.6974 $66,111 M 75 CC| > 75CC| | | 2001-02| 16| 32| 32| 16| 16| 16| %| 2002-03| 16| 32| 32| 16| 16| 16| %| 2003-04| 16| 24+1*| 24+1*| 16+1*| 16+1*| 16| %| 2004-05| 16| 24+1*| 24+1*| 16+1*| 16+1*| 16| %| 2005-06| 16| 24+1*| 24+1*| 16+1*| 16+1*| 16| %| 2006-07| 16| 24+1*| 24/16**+1*| 16+1*| 16+1*| 16| %| 2007-08? These expenses were attractive compensation and retirement benefits to its employees and high leverage. Availability of financing options has also increased in the last decade. … 93 lacs which increased to Rs. Automobile industry in India is an emerging sector and has a potential to improve it. Later, the company did respond to high consumer demand for fuel-efficient or alternative-energy vehicles by developing hybrid vehicles, but only long after its competitors had brought them to the market (Davis, n.pag.). It makes 60 million cars and trucks a year, and they are responsible for almost half the world's consumption of oil. Taxable event is import into or export from India. Hence, the emerging trend is that the car manufacturers shift to frequent price revisions. Also being a capital intensive industry economies of scale have important consequence * Government policies: Automobile Industry was delicensed in July 1991 with the announcement of the New Industrial Policy * The passenger car industry was delicensed in 1993. -0.7051 The consumers generally are less informed than the manufacturers and distributors. 31 crore people. Special Excise Duty: This is the duty leviable under Second Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. In the automotive industry, EU legislation and standards aim to reduce the emission of CO 2, NO 2 and particulate matter. ECON *120: Principles of Microeconomics Spring 2010 I. WowEssays, Feb 02, 2020. Internet technology has lowered entry barriers for other entrepreneurs with new ideas about helping customers find, evaluate and buy new vehicles (Hirsh, Rodewig, Soliman and Wheeler n.pag.). 1-Year Such manufacturing units manage to breakeven only at high output levels. 6.89 This is because it is the combined interaction of these two prime factors that decide the fate of industries. The two important variables to study microeconomics of automobile industry are demand factors and supply factors. 3.18 “Automotive Industry: Market Research Reports, Statistics and Analysis”. First, GM ignored the change in industry environment. 4. Actual Price (11/1/2007): $28.20 We accept sample papers from students via the submission form. 2013. Microeconomics Of Automobile Industry Research Paper Examples. automotive industry – with the focus on the use rather than the production of vehicles, in order to make the lives of individual users more enjoyable, more efficient and safer: in other words, “eascy.” This study sets out to show the promising prospects that will open up the way to restructuring the automotive industry. 48 Vitosha Boulevard, ground floor, 1000, Sofia, Bulgaria Bulgarian reg. The entrance is however also affected by the start-up costs * Economies of scale: The Minimum Efficient Scale (MES) is the point at which unit costs are minimized. The import of technology/technological upgradation on the royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is allowed under automatic route in this sector * The automotive industry comprising of the automobile and the auto component sectors has made rapid strides since delicensing and opening up of the sector to FDI in 1991 * The industry had an investment of about Rs. "Microeconomics Of Automobile Industry Research Paper Examples. A wide dealer network helps the company serve customers over wide geographical area. The second category consists of manufacturers like Mercedes that produce better quality cars with more features than the basic models of car. 0.0225 Crisis in the automobile industry can worsen India’s economy because it contributes to half of the manufacturing GDP. can use them for free to gain inspiration and new creative ideas for their writing assignments. Effective and successful operation methods like platform commonality, reduction in vendor base and workforce rationalization can help a company immensely. Published Beta: Investmentcontrarians.com, 4 Apr. Study of Macro Economic Factors affecting “Indian Auto Industry” Prepared by Sanjiv Narula . Unlike macroeconomics that deals with aggregate level activities, microeconomic deals with individual, household and firm level economic activities. Strategy-business.com, 1 Jan. 1999. The microeconomic demand factors that affect the automobile industry are purchasing power and affordability of households, availability of financing options, price of fuel (oil and gas), product promotion, demographic changes and availability of substitutes. An Equity Valuation and Analysis of Kroger Co. Principles of Microeconomics and Additional Data. 20 Apr. A larger shift happens if people are willing to take long-term loans, like five years instead of the earlier three-year loans. 22.65% With technological advancement, productivity also improves. Retrieved from https://phdessay.com/microeconomic-factors-in-automobile-industry-in-india/, Microeconomic Factors in Automobile Industry in India. From the 1970s, the industry saw emergence of green consumers who takes environmental criteria into account while making a purchase decision (Niewenhuis and Wells, 12). Second, the industry is dynamic and undergoing a lot of changes in the recent past. R2 Available from: https://www.wowessays.com/free-samples/microeconomics-of-automobile-industry-research-paper-examples/, "Microeconomics Of Automobile Industry Research Paper Examples." Web. The availability of easy and cheap finance for new vehicles in automobile sector has helped to drive up the industry sales in the United States to the highest levels since 2007 (Leong, n.pag.). 20 Apr. For example, if a competitor brings in an excellent fuel efficient technology, the supply of a manufacturer’s old model will decline. With its size and impact on economy, the automobile industry attracts attention of economists and nations. Your financial data is encrypted, safe, and will remain strictly confidential - this is our unbreakable WOW! The first section is a brief on automobile industry, its importance in global economy and its key characteristics. The government needs to bring policies to improve the situation of the automobile industry to prevent more job losses. 2013. While obtainability of credit encourages non-car users to buy cars, reduction in interest rate motivates an owner of basic car model to upgrade to a luxury car. Don't waste time. As the price of gas and oil increase, household’s fuel expense increases and people may shift to other cheaper options of travelling, like public transport. Macroeconomic Policies Affecting the Auto Industry In most countries, the level of automotive production is closely correlated to domestic or regional automotive sales. 1 Section - I Introduction to Value Added Tax. The point is the equilibrium point where the quantity demanded is equal to the quantity supplied. These together govern the economies of automobile sector. Brands that are considered technologically more advanced will be preferred to other brands. Web. To study the factors contributing to the growth of automobile industry. Factors of Production There are some factors of production which influence the supply of a car like. This supply mainly catered to meet the demand from households where the automobiles constituted the second largest expenditure item next only to housing. Moreover, some industries depend on the automobile industry by supplying input goods. It provides for levy and collection of duty on imports and exports, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences, etc. 2013. $715 M Fuel economy oriented customers moved to solar operated and electrically operated cars. With rising popularity of sport car and innovations in this field, few consumers shifted to this segment of cars. 9. 2020. Demographic changes and availability of substitutes are also affecting the industry and consumers are taking into account multiple factors before making their purchases. More energy efficient cars are another segment of cars that is gaining popularity. WACC(AT): 7.75% Accessed January 15, 2021. The goal of Ford is to build products that are immensely desirable so that they get profit. -0.6964 Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers, take the plunge. 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