Workings of the Auto Industry

Monday, September 19, 2011

Revenue Growth - International and Domestic

5:52 AM Dan 2 comments

The auto industry, like all industries, is being changed massively by technology and trends like globalization. Emerging international markets, especially, are changing where and how revenue is growing for this industry. The US car market is changing as well due to changes in complimentary goods (primarily oil), different needs, and (to an extent) different tastes.

International Auto Markets

The international auto markets are growing rapidly. US automakers and international automakers alike are expanding (or attempting to expand) into these markets. Automakers local to these emerging markets are also growing. The auto industry in some markets has grown more then 90% in recent years, compared to US growth which has remained stable or even shrunk in recent years.

Domestic Auto Industry Trends

The “green” trend has affected the Auto industry just as it has affected other industries, be it the trend to save money in hard financial times or to save our natural environment. The US trend in recent years has been towards smaller cars. Companies that can change with this trend are finding success while companies that could not have seen far less revenue growth in recent years. As these companies change to keep up with the cars consumers are buying, their revenue is beginning to grow as well.

Articles mentioned in this post:

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

http://online.wsj.com/article/BT-CO-20110913-713052.html

http://oica.net/category/production-statistics/

http://online.wsj.com/article/SB121726248201090179.html

(Image) http://commons.wikimedia.org/wiki/File:China_Sign_Slow.jpg

Auto Workers Union Revises Contracts with U.S. Auto Makers

9:18 PM Collin H No comments

The United Auto Workers, a union which represents more than 39,000 auto workers in North America (1), is reworking labor contracts with Ford, General Motors, and Chrysler. A tentative agreement reached with GM on Friday will help shape similar agreements with Ford and Chrysler. GM was chosen as "the lead company" because the UAW felt GM was most likely to meet the UAW's terms (2).

The agreement with GM will not become an official contract until all 45,800 UAW workers at GM vote to ratify it. The agreement secures several items on the UAW's wish list that were not included in previous contracts. This contract is also the first new contract to be reached since GM recieved a federal bailout. The new terms include raising wages $2 to $3 for entry level workers and reopening a plant in Tennessee which has been left in the dark as a part of GM's restructuring plan. GM also included terms in the agreement that link employee bonus checks to vehicle quality (3).

An agreement with Chrysler has yet to be reached, partially caused to disagreements and accusations between Chrysler's CEO and the UAW president. Negotiations will resume this week. Ford has been waiting to see the terms of the GM and UAW agreement before it finalizes its own agreement.

While GM promised to restore previously lost jobs in its agreement, Ford may not be able to commit to similar action. GM has a larger workforce within North America and its factories have been operating at a higher capacity than Ford's factories.

The problem with Chrysler's agreement may be matching a raise by Ford in entry level workers' salaries. Chrysler has more entry level workers than Ford, making it more costly for Chrysler to raise that group's wages.

Sources
(1) http://www.uaw.org/node/39
(2) http://online.wsj.com/article/SB10001424053111904194604576579123890851828.html?mod=WSJ_auto_LeadStoryCollection
(3) http://online.wsj.com/article/SB10001424053111903927204576574693025239016.html?mod=WSJ_auto_IndustryCollection
(Image) http://www.sodahead.com/united-states/should-politicians-wear-their-sponsors-patches/question-

Supply and Demand of the Auto Industry

6:46 PM Megan Rosburg 2 comments

Like all other industries, the auto industry can be illustrated by basic macroeconomics. If there is a low demand, then the purchase price will decrease. On the contrary, if the demand exceeds the supply of the vehicles on site, then the price can have a sudden increase. The manufacturer controls and oversees the inventory that is shipped out to the dealers (1). The price of cars will also increase in the buyers' incomes enlarge. Automobiles are considered a normal good, therefore if average income rises, so would the demand, supply, and price of cars (2).

Gasoline, a strong complement of automobiles, will always continue to have a steady effect on the demand curve (2). As the price of gas has risen, the demand for smaller and more fuel efficent cars has increased exponentially. The market for SUV's has decreased, therefore Toyota reacted by raising the price and production of its Pruis hybrid cars (3). In just two years (2005-2007) Toyota doubled its production rate of Prius cars, all because of simple supply and demand economics.

Sources

(1) http://www.carsforgirls.com/index.php/supply-and-demand-or-how-inventories-control-price/

(2) http://cstl-hcb.semo.edu/kerr/backdoor%20to%20economics/chap11.htm

(3) http://are.berkeley.edu/~sberto/AutomobileIndustry.pdf

(Image) http://www.thetruthaboutcars.com/wp-content/uploads/2007/02/x05co_ft049ar222.jpg

Basic Economic Facts About the Auto Industry

4:25 PM Monika Smidova 2 comments

The automobile is a primary mode of transportation for many developed economies. About 250 million vehicles are in use in the United States. Around the world, there were about 806 million cars and light trucks on the road in 2007, consuming over 260 billion US gallons (980,000,000 m³) of gasoline and diesel fuel yearly. What are the main conditions for a well-developed Auto industry? Basic and key reasons for any successful Auto business are:

Stable business and political environment (NAFTA member)
Highly developed technical base
Highly educated workforce, good access to university graduates with technical education
Strategic position

People use cars daily to get to work, to get children to school, shopping etc. They need cars every day. So how do the Auto companies make money? The primary income of money is in selling their products to people at a reasonable price. The additional incomes can be automotive repairs and maintenance. On the other hand, what are the companys' costs? There are few examples:

Production costs
Employee salaries
Automobile dealers
Auto parts, accessories, and tire stores
Promoting the product, such as advertising, billboards

In 2010, the number of cars in operation for the first time exceeded the value of one billion pieces. Magazine WardsAuto registered it. The government through information and historical development trends calculated that currently 1.015 billion cars run the world.

Sources
(1) http://www.hybrid.cz/1-miliarda-tolik-dnes-jezdi-po-svete-aut
(2) http://www.czechinvest.org/en/1automotive-industry
(3) http://en.wikipedia.org/wiki/Automotive_industry
(Image) http://www.fashionera.in/website/fashionera/gift/automobile/automobile%20industry.htm

Welcome to Our Blog!

3:42 PM Collin H No comments

Welcome to Workings of the Auto Industry! In this blog, we'll explore what drives the auto industry. The auto industry is one of the most important and largest industries in the global economy. Last year, over 77 million vehicles were produced around the globe! (1) Throughout this blog, you'll be able to explore everything from government recalls and regulations to manufacturing and marketing. Get on the right track to learning about the auto industry!