The Hard Times of the Automobile Industry

(My article published on

Value of a product

To run an industry, or more specifically, a company operating within an industry, it is a must to gain profits over the products. Profits keep the company’s expenses going while leaving enough on the table to meet the future demands. Until and unless the company receives profits on its products, it cannot invest in further endeavours and would probably start falling backwards. The path towards growth and expansion would become rocky and impossible to cross by the company. Hence, the end result would be the company to wind-up its activities or get sold to someone who can make better use of the company.

Profits start coming in with products that prove valuable to the customers. Value of a product is determined by the customer’s approach towards a product. A product that the customer is willing to spend his money on thinking that it will solve his problem, or would be helpful in solving the problem. When a customer believes in a product to be helpful for him, he willingly agrees to pay more than the costs incurred in the manufacturing, or production of the product. But value does not directly counts as a profit for the company that is manufacturing the product. The superfluous of value over the cost incurred in the manufacturing of the product gets divided among the consumers and the manufacturers by the driving forces of the industry, or the competition present within the industry.

In the absence of an alternate to the product, a manufacturer could reap in higher value than the product is worth. Snack bars on highways charge more for their products than they would be able to charge in a city filled with snack bars. Since there is no other snack bar or a hotel for miles on the road, the snack bar that is present in any location of the highway, can charge his customers as much as wished, without the fear of losing him to a competitor. In the absence of competitors, manufacturers get to rave more profits, where as competition would bring down the prices to a value that would not be profitable to manufacturers.

Whenever the manufacturers earn a superfluous, it is not profit. When an industry faces severe competition, overflow of the products in the market, influential labour unions, the money generated against a product gets distributed among all the stake holders. The amount of profits that can be earned by a manufacturer depends on the three driving forces of the market.

• Value of the product in the eyes of consumers.

• Greatness or lowness of competition in the industry.

• Limit to where the negotiations between the manufacturers, suppliers can rest with the consumers.

Demand and competition in the automobile industry

“Bearing a loss totalling $14.7 billion in the year 2008, Ford managed to scrape in profits totalling $6.6 billion in the year 2010, with a perspective to make even more the next year (Booth 2011).” The year 2007 & 2008 had been the worst for the economy all over the globe due to the sudden economic crunch. The automobile industry was severely wounded and the Ford had been a massive victim of the impact. Due to the high unemployment ratio in these two years, the demand for automobiles crashed because customers had no way of paying for the expensive cars. Many businesses big and small had to announce a complete shut down because they could not bear to keep the wheels rolling anymore as there were no buyers in the markets.

Automobile industry life cycle

Today the automobile industry faces a whole new life cycle than before. Products are manufactured keeping the industry demands in view. The four phases that drive the automobile industry are introduction of the car, growth of the car, maturity and depreciation. When a new model is manufactured it is introduced to the consumers using the various advertisement techniques. As the customers come in, the reviews both positive and negative help it in maturing.

More positive reviews means the car has become a hit and would make good sales. Maturity of the product is determined by a constant demand of the model, it can be as long as in years, as in the case of Toyota’s Corolla and Honda’s Civic, which are being carried from a very long time. After some time, the demand of a new car, or technology is raised, the depreciation phase starts and the manufacturers have to look for something new to keep the customers loyal to their fleet of cars.

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