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Study of Automotive Industry – Economics Research Paper(300 Level Course)

Study of Automotive Industry – Economics Research Paper(300 Level Course)
The automotive industry is one of the key industries in the United States and is a large segment of the overall U.S economy. The automotive industry has witnessed tremendous transnational growth during the last decade because of changes in consumer preferences, political and business policies and changing economic conditions. High growth has continued into the new millennium with the second highest total sales on record being achieved in 2001 as indicated by the Economist Intelligence

Unit (EIU). The EIU estimates that by 2006 or 2007, depending on the pace of economic recovery, auto sales will reach 20 million. Based on the nature of economics it is probable that the automotive industry will benefit from government initiatives such as the comprehensive energy policy, tax relief plans, and reduction in tax rates in the upcoming years.

Just in terms of numbers of establishments, there are over 122,692 motor vehicle parts and dealers according to the 2002 Economic Census report. This number is up from the 122,633 reported in the 1997 Economic Census report. The sales tallies are $814 billion according to the 2002 Economic Census report, which is up from $645 billion reported in the 2001 Economic Census report. The 1997 Economic Census report, the last with numbers for the breakdown between new and used dealers, reports that there are 25,897 new car and 23,340 used car dealers with sales of over $553 billion for new car and over $34 billion for used car dealers. Automotive industry represents over 2% of Total Industrial GDP and 12% of manufacturing GDP in 2002 – total GDP impact was $19.1 billion. Rigler (2005) Today most automobiles are sold at traditional dealerships, but the Internet is now playing an increasingly important role in the shopping and purchasing process. Over the last 10 years, the Internet has continued to play an increasing role in the automotive market, and that role is only likely to grow as indicated by EIU. Almost half of the US households that purchased a new vehicle in the six months leading to March of 2000 used the Internet in the buying process. Pastore (July) While new cars are generally sold by individual dealers via the Internet, the biggest market for used cars is through the big services. According to Ward’s Dealer Business’ 2004 edition of the annual e-Dealer 100 ranking, more than 80% of buyers go to the Internet at some point during their shopping experience with the number of online sales for the top 100 new car dealers at 125,198 which are up from 61,365 in their 2001 ranking. Adding to the overall Internet automotive market, the used car services like Auto Nation, Carmax, Sonic Automotive, and others account for a significant amount of all Internet automotive sales.

With regards to the sale of cars there are three main issues that need to be addressed. First, is the continuing popularity of sport utility vehicles (SUVs). SUV sales have been and will probably continue to account for a large segment of vehicle sales even if the growth has been somewhat stalled for new vehicle sales. The growing popularity of SUVs is supported by the numbers that show that in 1990 there were 929,000 of the vehicles on the country’s highways and roads and that this year the number has ballooned to 2.7 million. Schneider (April) One might think that the new growth area in the SUV market will focus on the smaller SUVs and sport wagons. These more fuel-efficient vehicles are becoming a more increasingly attractive choice for buyers. It is probable that these models are gaining in popularity because of the perceived safety concerns associated with the larger models and the more car-like ride. According to an Automotive News article “Sport wagons are driving the industry” in the August 16, 2004 issue, “Sales of sport wagons totaled 981,646 in the first seven months of 2004, which is up 18.5 percent from the year-ago period. July sales of 159,206 were up 16.3 percent from July 2003, which reconfirms the increase in popularity of sports wagons.

Second, is the desire for hybrid and electric cars. It is believed that this increase in desire has been prompted by high oil prices and a desire to be environmentally friendly. It is likely that this market will grow citing the increased prices of fuel and the heightened country awareness of our environmental concerns. While numbers for these types of vehicles are a fraction of the total number at present, hybrids in particular, are also growing in popularity. Of the just under 300,000 Civics that Honda sold last year in the United States, 25,000 were hybrids, said Chris Naughton, a Honda corporate spokesman based in New York City. For example, a June 7, 2004 article in Automotive News says that there was a waiting list of 20,000 for Toyota’s Prius with an average wait time of five months. Other manufacturers are getting into this market with hybrids in the works or already for sale. Honda has a Civic hybrid, Nissan is coming out with an Altima hybrid and Mazda will have the Tribute; 2005 looks to continue the trend with several new roll outs with Ford introduction of the Escape, GM’s introduction of the Chevrolet Silverado, and Chrysler introduction a few Ram pickups. higgs (Apri) While production numbers for the future models are limited, the increase in demand will most likely fuel an increase in production levels.

Lastly, we will address the factors that determine automotive purchasing. On top of the obvious pricing and incentive deals, many other local and national/international factors can affect retail sales of automobiles. Local automotive competition, plant closings and other substantial layoffs from local employers, and natural disasters, as well as national and international factors that range from interest rates, inflation, trade issues, oil prices to catastrophic events like 9-11, all of which can inhibit purchases. Although many of these factors are extremely hard to predict or forecast, one can be certain that each factor will help to determine the make up of the automotive industry for years to come.

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