Abstract
The General Motor Company has registered some considerable improvement in their sales for the past five years. The increment in sales for the company is attributed to many factors which are inclusive of the increase in demand for the products, increase supply for the company products and the consideration given to the price elasticity demand factors such as necessity, substitute product and time when making any price change decision within the enterprise. The demand and supply within the company and entire industry are affected by several issues some of which are attributed to the customer capability such as economic status and product preferences while others are attributed to company management strategies.
Introduction
In America three of the top automaker’s headquarters are located within the Detroit metro area. Being employed by one of the top consulting firms (AEA Group, 2017), it would be very beneficial to the firm core values to evaluate the microeconomic principles of General Motor. This will allow the firm and GM to understand the economy needs and demand on fuel efficient and clean energy vehicles. According to one source, “U.S. new-car dealers are telling automakers to limit production of passenger cars in the face of overwhelming demand for trucks and sport-utility vehicles that are forcing them to offer deep discounts on small cars” (Market Watch 2016). These types of demands are causing dealership to lose profits. This paper will provide an overview of production and how to meet the needs of the consumer, and how it could be a great benefit of the company.
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History
“General Motors has played a pivotal role in the global auto industry for more than 100 years” (GM History, 2009). General Motors (GM) was founded on September 16, 1908, by William Durant. Over several decades, GM “was the largest automobile manufacturer”. The brands we know today that the automaker produces is Buick, Cadillac, Chevrolet, GMC, etc. However, GM other brands included Oldsmobile, Pontiac, Hummer, Saab, and Saturn. The founding father of GM was a high school dropout, who had begun his fortune by building horse-drawn carriages, Originally he despised cars, he thought of them as being loud, smelly and dangerous. “Durant wanted to build a holding company that would leave its individuals parts more or less alone” (GM History, 2009). By the 1910’s GM had inquired over 30 automotive components and non-automotive components brands. By the 1920’s Durant was forced completely out of GM and last to known to have gone bankrupt and spend his known last days as manager at bowling in alley in Flint, MI until his death.
During the 21 st century, GM had filed bankruptcy and the old regime of GM was dissolved and the new regime of General Motor Company LLC was born. The new General Motors had purchased the majority of the old GM assets including the branding name “General Motors”. The stock exchange symbol went from GMGMQ to MTTLQ. In 2009 to comply with their bankruptcy filing, in 2009 GM had to close a number of their division, to include their Pontiac, Saturn and Hummer divisions. To date GM is making strides becoming a profitable company again. The “General Motor Foundation has donated nearly $1 billion to U.S. charities, education organizations, and disaster relief efforts world wide” (GM History, 2009). GM’s purpose is to continue social investments, promotes the economy growth through STEM (science, technology, engineering, and math) education. Also, to affect the world with their three guiding principles,
Support for recognized local, national, regional and global charities who provide unique programing and community outreach initiatives.
Seek out broad, strategic partnership opportunities directed toward our giving focus areas.
Work to leverage our commitment to empowering underserved GM communities around the world.
Supply and demand condition
As the bar graph suggest, the General Motor Company has enjoyed an incredible and steady increase in revenue globally. Their sales and innovative strategies have seen this company’s sales rise from approximately 16 billion in 2014 to whopping 19 billion in 2015. This is a remarkable increase worth congratulating. Along with new strategies, the company has invested in trusted sales agent across the world that has made their global market demand enlarge with time. New vehicle designs and invention are majored on as the company strategies to outcompete others in the global marketplace. The company prefers an open innovation which has brought in different ideas together to help the company management make a sound decision which propels the company. This has been a significant boost behind the massive change noticed in the graph between the years 2014 to 2015.
The company product has gained a real demand both local and at international level. This is the sole reason behind the company’s sales increment. The demand is attributed to the increased income among the potential customers which have allowed them to afford the product from the enterprise. The price of other related or substitute product is another variable attributed to the change. An increase in the price of replacement product renders the company’s products cheap and affordable hence give rise to its demand. For instance, the reduction of fuel price automatically increases the need for the vehicles. Other variable attributed to a demand increase for the company consumer taste and preference which favors their product. Others such as demographic characteristics of the population for instance increase in numbers of the middle-class individual with the capability of purchasing the cars is also determinant factors for demand in the entire industry.
The company has managed to gain study supply of their raw materials for their products which have enhance the ease at which it carries out its business operation. The company supply channel is affected by some factors or variables. The increase in the price of the product for the enterprise increases the supply while the product supply decrease in case of the reduction in costs. Alternatively, there is an inverse proportion between the cost of production and supply. For instance, there would be a decrease in supply in a case where the cost of production surpasses the market price. Consequently, a significant number of firms in the market reduce the supply of the products in the industry since the supply may not be enough for the entire companies in the industry. The price of related products also affects the extent to which the business run, for instance, an increment in the price of fuel automatically reduces the supply of the primary commodities such vehicles parts since the demand of the products decreases. Also, the expected future prices of the products have an impact on product supply to the company and entire market. In a case where the future prices of the products are expected to increase, the current supply tends to decrease since the suppliers are more interested in making more money during the time the market price is high. Consequently, where the future prices are expected to reduce, the supplies offload their products from their stores hence increasing the supply in the market. Technological advancement particularly on the supplies side has a positive effect on supply curve for the company and the entire industry. With the improvement in technology, the suppliers have the capability to produce more raw materials which they provide to the company and the industry at large.
The percent change in quantity demanded is known as Price Elasticity of Demand. It is a measure of one percent price of the product change when other factors are held constant. Elastic demand occurs when a bigger percentage change of the request is as a result of price changes.
The General Motors Company’s prices have had an increasing trend for the last five years. This has also been noticed in some of the company’s major competitors such as Nissan Motor Company. However, in 2015, there was a slight difference in the prices since the General Motors’ prices were slightly higher than others competitor. The price increment had an enormous impact on sales revenue even though the sales still increase but it did not hit the company’s target. This shows that the company products are more of elastic. Based on this data, it is right to assume that consumers shifted their attention to other products or companies in the market which had their products much cheaper. The General Motor company products are elastic since demand quickly changes in case their prices changes. This indicates that the goods are not a necessity for many consumers.
There are some variables which affect PED or the users responsive to a price change; the first factor is the nature of commodity which can be a necessity, comfort, and luxury. Price changes for luxury products reduce their demand while for the necessary products; price change doesn’t affect their demand rate. The availability of a substitute product reduces the need for the primary product in cases its price changes or increases. Consumers always prefer cheaper products which have the capability of meeting same demand as main products. Alternatively, time factor plays a significant role in product demand in case of price change. In a situation where the consumer can squeeze budget over time and develop the habit of doing well with the squeezed budget, the demand for such product automatically reduces. Also, if the consumers can share their budget and cope well when the prices are high, it can negatively have an impact on the demand.
Consideration is given to price elasticity demand by the business when decisions to change the price of their products are made which affects the products’ quantity demanded. The price change decisions have to be made based on how elastic a product is since the modification of product required is as result of price change which affects business’ revenue. An increase in prices of the goods sold by General Motor Company will lead to a decrease in quantity demanded by the firm's consumers since the products are elastic. This will later reflect or reduce the company revenue. For this reason, The General Motor Company must give a consideration to PED when deciding on issues concerning price change.
References
Jeff Bennett - http://www.marketwatch.com/story/us-demand-for-trucks-suvs-far-outpaces-cars-2016-02-11
History & Heritage
https://www.gm.com/company/history-and-heritage.html
Giving Back
https://www.gm.com/company/giving-back/about.html
