Microeconomics can be defined as the analysis of the decisions made by individuals and groups, the factors that affect those decisions, and how those decisions affect others (Moffatt, n.pag.). One of the most prominent factors affecting the global automotive industry is the looming prospect of a no-deal Brexit. ... To analyse the trend of key players of automobile industry. If this essay belongs to you and you no longer want us to display it, you can put a claim on it and we will remove it. Some examples of advertising and promotional strategies used by marketers are celebrity endorsement, old car exchange offers and offering cheap in-house financing options. 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. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago. 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. The Industry association ACMA reports that over 170 of its members have already received ISO-9000 certification and 23 have received QS9000 certification. 17 Apr. 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. To remain ahead in competition, auto-makers were tempted to offer value added services to the customers incurring more costs 2. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago (Caketail, n.pag.). Automobile industry in India is an emerging sector and has a potential to improve it. star Top subjects are History, Literature, and Social Sciences One factor is the media's influence on the car industry. The average age of a CC-segment car owner has also dropped from 35 years to 31 years in India. Demographic Drivers. The goal of Ford is to build products that are immensely desirable so that they get profit. 20 Apr. The Commission also works on noise reduction and the elimination of fluorinated greenhouse gases used in mobile air-conditioning systems. 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. Technology and innovation help attract customer more. Also the level of automotive sales and production is closely related to disposable income levels, interest rates and finance availability, consumer confidence and other factors influenced by macroeconomic policies. Estimated: This trend has led to shift of power to the retailers. 93 lacs which increased to Rs. Percent Institutional 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. Microeconomics on the Automotive Industry. 2. 1 - 12 2 Section - II Value Added Tax in Maharashtra. 2013. Currently, India’s share of global passenger cars export volume stands at less than 1%. Since it is an oligopoly market, adopting effecting product and price differentiation strategies based on customer’s preferences is an important feature of the industry. Exports. If rivalry among firms in an industry is low, the industry is considered to be disciplined * High Fixed costs When total costs are mostly fixed costs, the firm must produce capacity to attain the lowest unit costs. Buyers get incentives in the form of cost discounts and better after sales services * The major focus of Indian Component suppliers is Quality as suggested by one of the Japanese Quality focus firm. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the automobiles are manufactured. ", "Microeconomics Of Automobile Industry Research Paper Examples,". This has resulted in a sharp decline in investment in the European auto-markets. Economies of scale are becoming increasingly important as competition is driving the profit margins to lower levels. 20 Apr. No industrial licence is required for setting up of any unit for manufacture of automobiles except in some special cases * The norms for Foreign Investment and import of technology have been progressively liberalized over the years for manufacture of vehicles including passenger cars in order to make this sector globally competitive * At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. "It's not a matter of whether consolidation will happen, but when." Except the 800cc range in other categories brand loyalty is only moderate. 1. Financing Options Web. Increase in per capita income increases the consumption tendency of the customer. As proportionate spends on essential items is decreasing, spends on luxury goods increase. This also acts as opportunity for automobile manufacturers, as consumers will be attracted by high mileage options during these scenarios. The third section illustrations some live examples of microeconomic decision making in automobile industry and the consequence of such decisions. Your financial data is encrypted, safe, and will remain strictly confidential - this is our unbreakable WOW! In automobile manufacturing, the initial investment and cost of running factory is high. Report Linker. Demographic changes have also affected the demand of automobiles and growth of automobile industry. Lipschultz, J.T.S. 52 Week Range: This section of the paper discusses the application of microeconomics in automobile industry. While, product and price differentiation has already been discussed in the previous section, this section of the paper discusses the importance of advertising and promotional activities undertaken by firm, and its impact on household demand for cars. The first category consists of players like Toyota and GM that produce basic models and compete on price differentiation strategy. -0.6980 Most of them are have good amount of knowledge about the product. 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. ROE: In response, the manufacturers want to expand their participation in the customer life-cycle value chain to improve profitability and grow in markets that have been largely stagnant (Hirsh, Rodewig, Soliman and Wheeler n.pag.). Also it is difficult to measure since repurchases are rare. Automobile Industry Hailed as ‘the industry of industries’ by Peter Drucker, the founding father of the study of management, in 1946, the automobile industry had evolved continuously with changing times from craft production in 1890s to mass production in 1910s to lean production techniques in the 1970s. The contribution of the automotive industry to GDP has risen from 2. 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. A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. 20 Apr. 3.26 Threat of Substitutes * The replacement market is characterized by the presence of several small-scale suppliers who score over the organized players in terms of excise duty exemptions and lower overheads. It contributes almost 3% to the gross domestic … 20 Apr. -1.21% Question: La) What Are The Microeconomic Factors That Affect The UAE Automobile Industry? 0.0227 StudyMode.com, Nov. 2012. After filling out the order form, you will be directed to payment via Credit Card or another preferred method. These together govern the economies of automobile sector. (2020, February, 02) Microeconomics Of Automobile Industry Research Paper Examples. 8. Managerial economics = the science of directing scarce resources to manage effectively > each needs to understand how they. Thus, while rise in fuel price reduces demand for automobiles, it increases demand for high fuel efficient cars and cars running on alternative energy sources. 22.65% Business, Marketing, Microeconomics, Industry, Customers, Cars, Vehicles, Automobile. 31 crore people. Interest rates on car loans have come down drastically in the past four or five years, which helps prospective buyers, take the plunge. 5.26% R2 Come browse our large digital warehouse of free sample essays. Price performance comparison favors heavily towards Maruti in most product categories. Today with high amount of disposable income in the hand of Indian youth, who forms major portion of the population, P-marker has larger addressable market. With rising purchasing power, there has been a shift to luxury models of cars, as compared to lower end cars. China is a highly competitive market, "with more manufacturers competing there than in any other market in the world," which has resulted in a dilution of profits, he says. First, automobile industry significantly contributes to global economy. According to the U.S. Bureau of Labor Statistics, the automobile and parts manufacturing sector employed about 700,000 workers in October 2011 (Basu, n.pag.). (2017, Mar 16). “Changing Channels in the Automotive Industry: The Future of Automotive Marketing and Distribution”. This has led to changing lifestyle in people, increasing demand for automobiles for commutation in cities leading to industry growth. 6. The brand includes Ford, Lincoln, Mazda, Mercury and Volvo. Don't waste time. Investmentcontrarians.com, 4 Apr. Automobile industry is competitive for the suppliers. 3. WACC(AT): 7.75% With only a few firms holding a large market share, the market is less competitive (closer to a monopoly). These factors influence the supply of a car largely. Retrieved from https://phdessay.com/microeconomic-factors-in-automobile-industry-in-india/, Microeconomic Factors in Automobile Industry in India. The Indian auto industry is one of the largest in the world with an annual production of 23.37 million vehicles in FY 2014-15, following a growth of 8.68 per cent over the last year.. 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. The two important variables to study microeconomics of automobile industry are demand factors and supply factors. Wide Dealer Network and Availability of Finance. CONTENT Sr. No. Due to escalation in competition in Indian car market, frequency of new model launches has increased. can use them for free to gain inspiration and new creative ideas for their writing assignments. Both, number of private and public financiers and their growth focus have helped industry. This is because it is the combined interaction of these two prime factors that decide the fate of industries. 0.0233 $20.16 B We use cookies to give you the best experience possible. Demographic changes and availability of substitutes are also affecting the industry and consumers are taking into account multiple factors before making their purchases. WowEssays, 02 Feb. 2020, https://www.wowessays.com/free-samples/microeconomics-of-automobile-industry-research-paper-examples/. High levels of unemployment and lack of Job security reduce consumer confidence, inversely affecting demand. Unlike macroeconomics that deals with aggregate level activities, microeconomic deals with individual, household and firm level economic activities. Hire a subject expert to help you with Microeconomic Factors in Automobile Industry in India. 2-Year this industry relates to construct and maintain the buildings such as; houses, schools, hospitals, factories, offices, roads, bridges, ports and other constructions. General Motors was one of the most reputed companies of USA at one time and it was doing extremely well financially. FOUNDATIONS OF ECONOMICS A. Scarcity, Production Possibilities, Efficiency and Exchange Section I. Moreover, some industries depend on the automobile industry by supplying input goods. The revision can either increase or decrease labour cost. Microeconomic Factors in Automobile Industry in India. Internet and retailing are playing an important role in marketing and distribution in automobile industry. Cost of production is an important determinant of the amount of automobiles supplied by firms in such oligopoly market. Cost of labor is another important factor. The greater the difference between the MES and the entry unit cost, greater is the barrier. 3. A larger shift happens if people are willing to take long-term loans, like five years instead of the earlier three-year loans. ROA: Get the knowledge you need in order to pass your classes and more. “Microeconomics: Microeconomics in Action”. -0.17% The current hardening of interest rates is expected to affect demand by reducing affordability. $66,111 M It set an example for other automobile companies in before 2008. Davis, Marc. Ownership: 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. Government policies, sometimes, lead to drastic revision in labour wages. Typically a customer upgrades from one segment to higher segment and the presence across various segments ensures that the company retains its existing customers. “What is Microeconomics?” About.com, 2013. Cost of production primarily governs supply in the industry. Bargaining Power of Buyers * It specifies the impact of customers on the product * When buyer power is strong, the buyer is the one who sets the price in the market. In the automotive industry where the market type is oligopoly, if one company drops its price for the car, there is a huge impact on the sales of the other cars as well as the same car. 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. Leong, George. The Local Bodies are empowered to levy tax on properties (buildings, etc. Investopedia, n.d. 10-Year -1.30% Of that, $327.1 billion was auto manufacturing and $218.3 billion was vehicle retail sales. More energy efficient cars are another segment of cars that is gaining popularity. First, GM ignored the change in industry environment. Differentiation has become an important aspect of automobile industry. Please note that we cannot guarantee that unsubstantiated claims will be satisfied. Rising affordability, especially in middle class population has accelerated the demand household demand for automobiles. Brands that are considered technologically more advanced will be preferred to other brands. Published Beta: In case manufacturers have international trade exposure, currency volatility will also affect their profitability. 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? On the other hand, elasticity tells us how much quantity demanded or supplied changes when there is a change in any of the factor. A trend has been emerging of migration from rural and upcountry areas to cities for better economic opportunities. At present this is leviable on very few items. For example, by end of twentieth century, US buyers and turned to light trucks, much heavier than cars, thus largely negating the gains made in more efficient car designs (Niewenhuis and Wells 12). 280586059, Well-researched, fact-checked, and accurate, Eloquently written and immaculately formatted. It is debated that poor microeconomic management was one of the reasons for the company’s downfall. MACRO-ENVIRONMENTAL FACTORS AFFECTING AUTOMOBILE INDUSTRY 2. 1.05 [Accessed January 15, 2021]. But India is fast emerging as a manufacturing hub for leading global car makers, and several manufacturers have already firmed up plans for setting up manufacturing bases in India, which will also be used for exports. The more the quantity changes, the more elastic the good or service. 7-Year ), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities. 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. 5| 100/60/12. 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. Available from: https://www.wowessays.com/free-samples/microeconomics-of-automobile-industry-research-paper-examples/, "Microeconomics Of Automobile Industry Research Paper Examples." Note: this Macroeconomic Policies Affecting the Auto Industry In most countries, the level of automotive production is closely correlated to domestic or regional automotive sales. If the cost of factors of production increases, the supply of cars will be adversely affected. It is changing the traditional dealership model in the industry and paving way for presence of multiple channels, thus benefitting the end customers. Online 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. Altman Z-Score All these factors and wrong microeconomic decision taking led to downfall of the company and is an example of microeconomic failure. Growth in per capita income and rising aspirations and changing lifestyle is leading to increased preference for cars over two-wheelers, which is also having a positive rub off on car demand. On 2… number: 206095338. Introduction: The construction industry is considered as one of the important industries in the world, however in Europe the percent of workers in this sector is 7% (OECD,2008). 0.0225 reportlinker.com, 2013. Since the beginning of 2012, some buyers have voluntarily turned to short-term contracts with an adjustable pricing mechanism to reap the benefits of declining steel prices (The Smart Cube, n.pag.). Increase in cost of production by rising prices of factors of production like labour, raw material and capital affects supply in the industry. Investment Recommendation: Overvalued; Sell 11/01/07 Microeconomics is an important element of economics that studies decision making of smaller units like individuals and firms. The firms in the segment compete with a slight product differentiation and optimum pricing strategy. 3. -0.6997 Cost of labour also determines supply in the industry. Toyota made a cheaper car with better gas mileage that was of better overall quality, and was engineered for greater durability than its chief competitor, GM (Davis, n.pag.). Depreciation, too, is a cost to which the market pays attention; variation in value retention rates likely reflect qualitative aspects of products, such as their reliability, comfort, and quality of manufacture (Lipschultz 160). Economic activities Statistics and Analysis ”, number of new firms into market! 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