Economics & The Automobile Industry

Mr. Lamberti

The Economy (Market, Mixed, Command)1.1 Individual, Business, &

Government Choices

1.2 Competitive Markets

1.3 Prices, Supply, & Demand

1.4 Role of Government

1.1 Individual, Business, Government Choices Will you be a…

◦For Profit◦Not For Profit

◦Sole Proprietorship (70%)◦Partnership (10%)◦Corporation (20%)

Auto Companies?Most auto companies started out

as either a sole-proprietorship or a partnership with help of investors.

Once they realized the DEMAND, companies became larger and larger. They began forming corporations and merging together to SUPPLY the need of the growing middle class.

1.1 Individual, Business, Government Choices Where will you produce your product/service?

Why should you place it there?

What will you sell?

How should you set it up?

When will you be open?

Who will your customers be?

Where, Why, How…Where – Europe to America to Michigan

Why – Michigan Wealth = INVESTORS

What – Battery, Steam, Gasoline

How – Handmade to Mass Produced

When – Normal Day to Shifts

Who – Rich to Middle Class to Lower Class (Pricing/Production)

EntrepreneurshipEntrepreneurship is the pursuit of

opportunity without regard to resources currently controlled.

-Harvard Business School

The ability to take an idea, product, or service (new or old) and bring it to market.

- Mr. Lamberti

1.2 Competitive MarketsMore competition leads to lower prices

Less competition leads to higher prices

Ex. – Ford realizing mass production and having a lower price.

(If he did not have competition he probably would have sold the car for more because he would be the only offering cars)

CompetitionState

GM - Billy Durant - 1908 (MI)Ford - Henry Ford - 1903 (MI)Chrysler - Walter Chrysler - 1925 (MI)

National

Tesla - Elon Musk, Martin Eberhard - 2003 (CA)Fisker - Henrik Fisker - 2007 (CA)

International

Toyota - Kiichiro Toyoda - 1937 (Japan)Honda - Soichiro Honda - 1948 (Japan)Nissan - Yoshisuke Aikawa - 1932 (Japan)Mazda - Jujiro Matsuda - 1920 (Ford used to be #1 shareholder but is now 4th largest) (Japan)Tata - JRD Tata - 1945 (Owns Land Rover & Jaguar) (India)Fiat - Giovanni Agnelli - 1899 (Italy)Ferrari - Enzo Ferrari - 1929 (Italy)Rolls Royce - Henry Royce, Charles Rolls - 1906 (England)BMW - Karl Rapp - 1917 - (Germany)

Pricing & IncentivesCan Price be an incentive?

Incentives entice people to buy Lower interest rate on a loan Free/cheap upgrades

1.3 Prices, Supply, & DemandWHO WANTS CANDY

◦Free (Scarcity of Supply)◦$.25 (Equilibrium Point)◦$25 (Scarcity of Demand)

Interactive Chart

SupplyWho supplies cars to dealers?Who supplies parts to the car

companies?Who supplies the materials to the

car companies?

Supply = Amount of quantity produced

DemandWho are the demand for cars?Who are the demand for parts &

supplies?Who are the demand for

materials?

Demand = Amount of quantity desired

Equilibrium PointWHERE SUPPLY MEETS DEMAND

S

D

ScarcityDefinition of SCARCITY

◦Having unlimited wants but limited resources

◦Because of scarcity, various economic decisions must be made to allocate resources efficiently.

World War II The United States accounted for 80% of world

production of automobiles before the war. During the war, total world production dropped to

20%.

CompetitionDo you think it would be a good

idea to promote Cadillac in large European countries?

How come GM did not introduce an electric/hybrid in the 90’s to compete with Toyota?

Should we consider a car’s name when marketing it to other countries?

1.4 Role of GovernmentWhat roles does Government

play in the purchase of a car?

What roles does Government play after the purchase of a car?

Roles of GovernmentPurchase

Ensure banks are responsible when lending

Make sure you are told the truth You get what you paid for

Post Purchase If the car has a safety defect the manufacturer

must notify you Insured & Licensed

Minimum WageConsumer

Producer

Worker

Investors