Report: How the automotive industry is accelerating out of the turn

Instructions for Report 1
STUDENT NAME

STUDENT ID

Executive summary

The purpose of the paper is to conduct economic analysis of article chosen “How the automotive industry is accelerating out of the turn” and determine the relevant policy issues. The purpose is to identify the understanding of the economic analysis and reasoning. The aim of this report is to identify issues in the main article and to provide an in-depth article analysis and to relate with the theoretical relation.

Contents

Executive summary 2

Introduction 3

Outline of theory 4

Analysis 5

Conclusion and Recommendations 8

References 10

Appendix 11

Introduction

The article chosen for the analysis is the “How the automotive industry is accelerating out of the turn” published by the McKinsey Quarterly and authored by Hensley, Russell, Inga Maurer, and Asutosh Padhi. Article discusses in detail about the COVID-19 crisis to be supported in the dip road, car sales along with the production and using in the automotive industry. Due to the global pandemic automobile industry saw a significant drop by the 71% in February 2020, with the sales drop by 47% in the United States and 80% of the drop in the Europe (Hensley, 2021). Even though in the entire industry, there have been no significant industry’s engines, consecutively leading to the stoppage in usage of the cars, trucks and in roaring back. From the third quarter period 2020-2021 globally automobile industry has been seen a transition in the production and in the other levels of the multiple industries working in the geographic regions (Yan, 2020). There is a rise in the great acceleration and a trend in the mobility value chain in production across different geographic (Wu, 2021).

Outline of theory

Price elasticity

Price elasticity is defined as the consumer sensitiveness towards the product. By definition, price elasticity is refer to the product quantity in the product demanded or purchased in the changes more than the price change and is refer to the elastic. For example if the consumer is willing to buy a car or the truck buying, would be insensitive to the price, due to the higher income, due to the availability of substitutes, price level, income levels and the time period. As the consumers would exploring more vehicles in the near market or online, customers would also be evaluating features and determining the actual sales process (Nayak, 2021). In using the actual sales process a proper estimation of dealership is required, but post the pandemic consumers were sensitive to the price changes and there was also difficulty in determining the negotiations and the dealership person restrictions. Dealers would use the floors in engaging with the customers and using the phone, videoconference along with the potential buyers to take an advantage in sites, along with the taking a sites along with the related services, financing and remotely taking part-buying process.

Post COVID , consumers have a choice and also had the required demand as per the market, depending on the availability of products, tenure period, choices , substitutes availability and using the price level along with the income level (Belhadi, 2021). But after the COVID 19, due to the low income and higher unemployment level, there has been a fall in demand of the automobiles. Firstly there automobiles are not the essential items and secondly, during the lower income post COVID period consumers would be shifting their demand to the essential items rather to the non-essential goods (Nayak, 2021).

Demand and Supply

Demand and the supply of the market aims to establish output and price as per the market forces. Depending on the market forces, such as the demand of the automobile, the prices are set and more goods are supplied accordingly. Higher the demand, there would be a higher output supplied at the higher price. Once the consumer demand has met with the producer supply, it would lead to the equilibrium price and output (Belhadi, 2021). During the pandemic restrictions, with the shutdown scenario there was a less demand and even after the automobile industry has offered some discounts and promotion, still there has been a low or no demand. Post Pandemic period was over, when the economy has opened up; there has been a slight rise in demand for only the needy people. Once the market, has opened, with the government support to the consumers in the form Seek job support, unemployment benefits and providing the necessary support has led to the slight push in the market. But automobile industry has been slower in the revival market, hence it is important to introduce the advancement and innovation to bring a consumer growth demand in market. Willingness to purchase goods at the time of the post or the prior pandemic period has been characterized as the desire of the goods, need and the requirements (Rajamohan, 2020). Ability to purchase and capability to research and substitute has always been one of the important factors that make the consumer demand and adapt to the changes (Raj, 2020). For example when there is a rise in the income, consumer would demand automobiles which exactly suit their budget. Similarly, the ability to replace the vehicles with the next available choices is the dependency on the available goods and market requirements.

Analysis

During the pandemic attack, there has been a contraction in the demand as most of the consumers have switched over to the nearest available substitutes or were not demanding the costly items. As the automobile industry has been one of the luxury items and there has been a gap in between the consumer demand and the producer supply, it has resulted in the contraction in the automobile industry (Nayak, 2021). Demand and the supply have caused the changes in the manufacturing and it has led to the inventories process, causing a limited process and facing the processes and inventories along with the supplier’s raw-material suppliers. In the routine tracking of the supply chain, there has been a trend in the market causing a shrinkage and low demand, leading to the contraction in the market (Belhadi, 2021). For example in the article the example has been taken is of the Toyato car industry which has shown over a dramatic improvements in the supply-chain visibility, with the advancement in the technologies and during the process of the microchips in the lower-tiered suppliers. As a result of the automotive supply chain, there has been a higher transparency and using the accelerating system of the OEMs and tier-one suppliers.

Post COVID 19, there has been a complete shutdown scenario, with the supply curve shifting to left, prices lowering down and there Isa shrinkage in the demand to the Q2 level. During the COVID 19 period there has been a shrinkage in the demand and market forces has been operating at the P1level at large, we expect that the core autonomous, connectivity, electrification, and smart, shared-mobility (ACES) trends and experiencing a high electrification. Prior to the COVID period, the automobile industry has also invested in the $300 billion in ACES technologies, and focusing on the future mobility. Post pandemic there has been an introduction of the smart and shared mobility (like of the e-hailing, micro mobility, along with the car sharing) that has fallen significantly. During the third quarter, after there has been a change in the autonomous demand and it has driven the investments in the connectivity to the overall changes. In comparison the other changes to the environment like infotainment and cyber security has been tremendously being changing.

Market Forces (Source Wu, 2021)

Price elasticity

Elasticity of the demand is referring to the price responsiveness of the consumer demand due to the fluctuations in the market. Post COVID 19 periods, there has been a high sensitivity to the changing consumer demand towards the expensive automobiles. Due to the low income and a brief period of the unemployment has caused higher price sensitivity and consumer repulsiveness to buy goods. As automobile is a luxury item and require high budget, consumer are sensitive to the purchase of the automobiles. Unless they are in need and the requirement of the automobiles there is always a less demand of the automobiles. During the COVID 19 as there has been a brief period of the lockdown and the shutdown scenario, the automobile industry has seen shrinkage in the market as the people have become a highly sensitive to the goods price. Globally automobile industry has been seen a transition in the production and in the other levels of the multiple industries working in the geographic regions (Yan, 2020). There is a rise in the great acceleration and a trend in the mobility value chain in production across different geographic. As there has been lockdown and the shutdown, with the market imposed restrictions the prices have fluctuate as per the pricing sensitive to the goods (Rajamohan, 2020).

Prior to the COVID 19, the automobile industry has been incentive market meaning there has been an inelastic demand and post the COVID 19 period there has been a sensitivity to the market, causing the elastic demand (KAMALAKANNAN, 2020). In order to improve the demand, post COVID 19 there has also been a period of the advanced technology, introducing the high tech gear and equipment’s, which would help to revive up the demand. When there is a technology change, initially the market demand would be less for the innovative technology, with a less acceptance in the market, but post a period of establishing and due to the customer reviews; people would become less sensitive to the goods (Hensley). Advancement in the technology would lead to the cost optimization and changes in the equipment’s (PB, 2021). Once the market, has opened, with the government support to the consumers in the form reduced taxes, job support, unemployment benefits and providing the necessary support has led to the slight push in the market. Even though in the entire industry, there have been no significant industry’s engines, consecutively leading to the stoppage in usage of the vehicles. Even there has been a reduction in the Cess tax, excise tax and other indirect taxes to make consumer less sensitive and demand more of the automobiles. Due to the high sensitivity towards price changes, has caused a significantly change in the product demanded or purchased in the changes.

Elasticity (Source KAMALAKANNAN, 2020)

Conclusion and Recommendations

In the end, the pricing and the output has phenomenal changes in the economy, casing a destabilization in the market. Digitization, changes and an increase in automation has caused higher changes in the market, causing changes in the industry revolution (PB, 2021). The automobile industry has seen a tremendous change causing a rise in the automobile industry. As the automatization has led to the automotive sector changes and more demand in the technology driven trends, there has been an automotive sector fluctuations and changes as a result of the diverse mobility, facing the autonomous driving, along with the electrification, and connectivity. In the Automobile industry post and the prior COVID 19 period, has seen an usher of demand for the product amount and in the willingness to purchase at every price (KAMALAKANNAN, 2020). There are two factors in addition to price that can likely to affect demand. Price elasticity and the unstable market has been the prime cause of the fluctuations and changes in the market (KM, 2021). Due to the low demand in the automobile, causing shrinkage in the car industry has led to the turbulence and market changes in the demand-supply of the market.

The first recommendation is the changes in the automobile industry demand would likely be due to the improvements and continuous changes bought in the digital, mobility and bringing a more effective ways to connect like electric. As the entire decisions to buy and changes in the environment, has made the consumers to focus on the factor sustainability. Therefrom, in order to improve the automobile industry advancement in the technology and changes can help to improve the buying decisions. For example there has been a more demand of the electric vehicles in 2020 accounting a sales rise by 43% due to the advancement in the technology. The second recommendation is the changes in mobility requiring changes in the automobile industry and using the automakers to adjust with the organization. Third recommendation is to upgrade workers skills and provide an improved reskill changes for the current workforces. As the trends would continue to accelerate, there would be a rise in the demand of the skilled labor, rather than demanding an outdated technology and redundant skills set.

References

Belhadi, Amine, Sachin Kamble, Charbel Jose Chiappetta Jabbour, Angappa Gunasekaran, Nelson Oly Ndubisi, and Mani Venkatesh. “Manufacturing and service supply chain resilience to the COVID-19 outbreak: Lessons learned from the automobile and airline industries.” Technological Forecasting and Social Change 163 (2021): 120447.

Hensley, Russell, Inga Maurer, and Asutosh Padhi. “Automotive Industry after COVID-19: BRASIL.” McKinsey & Company. McKinsey & Company, July 19, 2021. https://www.mckinsey.com.br/industries/automotive-and-assembly/our-insights/how-the-automotive-industry-is-accelerating-out-of-the-turn.

KAMALAKANNAN, A., and VP MATHESWARAN. “Impact on Employees due Covid-19 Pandemic in Automobile Industries with special reference to Chennai District-A Bird’s View.”

KM, Kiran Raj, and Nandha Kumar KG. “Impact of Covid-19 Pandemic in the Automobile Industry: A Case Study.” International Journal of Case Studies in Business, IT and Education (IJCSBE) 5, no. 1 (2021): 36-49.

PB, MRS LAVANYA, DR SUBBA RAYUDU THUNGA, and DR RAJU. “The covid-19 in India-impacts on the economy and the automobile sector.” Journal of Contemporary Issues in Business and Government 27, no. 3 (2021): 197-201.

Rajamohan, S., A. Sathish, and Abdul Rahman. “Impact of COVID-19 on stock price of NSE in automobile sector.” The International Journal of Advanced Multidisciplinary Research 7, no. 7 (2020): 24-29.

Raj, KM Kiran, and KG Nandha Kumar. “Impact of Covid-19 Pandemic in the Automobile Industry: A Case Study.”

Nayak, Janmenjoy, Manohar Mishra, Bighnaraj Naik, Hanumanthu Swapnarekha, Korhan Cengiz, and Vimal Shanmuganathan. “An impact study of COVID‐19 on six different industries: Automobile, energy and power, agriculture, education, travel and tourism and consumer electronics.” Expert systems (2021).

Yan, Yingying, Shiquan Zhong, Junfang Tian, and Ning Jia. “An Empirical Study on Consumer Automobile Purchase Intentions Influenced by COVID-19.” Available at SSRN 3593963 (2020).

Wu, Xiling, Caihua Zhang, and Wei Du. “An Analysis on the Crisis of “Chips shortage” in Automobile Industry——Based on the Double Influence of COVID-19 and Trade Friction.” In Journal of Physics: Conference Series, vol. 1971, no. 1, p. 012100. IOP Publishing, 2021.



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