Management Economics: Factors Influencing Demand of General Motors Cars

This report explores the factors that influence the demand of General Motors cars and how management economics concepts are used to analyze and predict future business progress. It discusses the overview of General Motors, market analysis, and the impact of factors such as price of substitutes, customer preferences, and demographics on the demand of General Motors cars.

Management Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
1. Overview of General Motors its products/services and history..............................................1
2. Market Analysis of General Motors to evaluate factors which influence its demand............2
3. How factors influence the products and services of General Motors.....................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Managerial economics defines as a concept of business management that integrate the main
components such as income and expenditure, resource etc. in profitable manner. For resolving
any business related issues especially financial, management of a firm use this concept mostly,
that provides a number of key theories and methods to take decision (Girella, Tizzano and
Ferrari, 2019). The present report is going to elaborate how company used management
economics concept for recognising their past behaviour and estimating the future progress of
business. For this purpose, General Motors is chosen that deals in automotive sector, because it
operates business in various countries, where supply of raw materials and changes in economic
structure affects its demand of product in higher way. To investigate this aspect, various factors
are evaluated in present report that also helps in determining whether demand of GM products is
elastic or inelastic.
1. Overview of General Motors its products/services and history
The automotive industry refers to a most developed sector that spreads business
economically at worldwide level (Panayides, 2019). Companies that deal in this era, used to
manufacture and distributes millions of cars, trucks and other transports every year. This would
ultimately help in developing economy of a country, as well as contributing major role in giving
employment to millions of people either directly or indirectly. Along with this, automotive
industry is also responsible for consumption of fuel or oil. Therefore, to analyse concept of
managerial economics, chosen of automotive sector refers to most beneficial as it evaluates
entire aspects that are essentials for analysing same (Saritas, Meissner and Sokolov, 2019). For
example – General Motors (GM) is one of the largest organisation that headquartered in America
but offers its products in entire world. It has created a number of innovations for producing
luxury cars such as Chevrolet, GMC, Cadillac and more, which aid this firm to sales highest
volume of cars as compared to other firms annually.
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From economical research, it has been evaluated that GM is on top most position in the
list of Automotive Assembly Companies, which sales approx. 9.17 millions per year with over
$US192.6 Billions of revenues. So, it has shows that demand of products of GM is higher than
other firms like Toyota, Ford, Volkswagen and more.
2. Market Analysis of General Motors to evaluate factors which influence its demand
As per the economic theory i.e. law of supply and demand, supply and demand of a
particular product or service is related with each other (Ramanadham, 2019). Here, relationship
among these two key terms is known to be market equilibrium which affects highly the price of
products and services. In context automotive industry, there are number of factors present that
influences the demand of relatable goods like private and luxury vehicles. It includes price of
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substitutes and complementary products, consumer taste & preference, expectation of customers,
demographics and more (Eber, Vega and Grant, 2019). Impact of these factors on demand of
General Motors cars can be analysed in following way –
 Price of substitutes: Changes in price of substitute products at a certain marketplace,
will directly affect the demand of specific one also. With respect to automotive industry,
availability of substitutes of vehicles contributes a moderate force on vehicles
(Jankaweekool, Chaiyawat and Sinthupinyo, 2019). In this regard, substitutes of GM
includes conventional and more powered gasoline engine cars, zero-emissions and plug-
in hybrid vehicles etc. impact directly the demand of its cars. But intensity of threat of
such substitutes considered as week due to highly innovative features and fuel efficient
vehicles of GM.
 Price of complements: This factor includes price of complementary products like
brands and different models of cars, that highly influences the demand of particular car.
So, whenever price of other brands like in context with GM, its major competitors are
Volkswagen, Toyota and other, change their prices then it highly affects its own product
price also (Masoomzadeh and et. al., 2019). For example – fall in prices of other branded
cars, this will provide benefit to GM by shifting positively its demand, because people
before buying any vehicle concern on its market image first, rather than price.
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 Customer taste & preferences: This factor highly contributes the major shift either
positively or negatively the demand of any product. In context with automotive industry,
due to awareness about increasing pollution which majorly arise because of fuel
consumption vehicles, therefore, people mainly prefer to purchase those cars that are
efficient and consume less fuels (Severino and Godinho Filho, 2019). The another reason
behind change of customer preferences and taste includes the innovations and high
technological inventions, where they demand to purchase those cars which are designed
and manufactured as per their life styles and standard of living.
 Expectation of customers: From automotive industry, customers demanded to purchase
those cars which provide them better security and safe driving (Saritas, Meissner and
Sokolov, 2019). They highly expect the cars will satisfy their needs like affordable as per
their income level, fuel efficient, contributes less in pollution etc.
 Demographics: Shift in demographic also shape the future of cars where, riding sports
cars, self-driving vehicles, innovative features and more, highly affect the consumer
behaviour. Therefore, car-loving people are readily move to cities to enjoy the riding by
cars (Panayides, 2019). This will also contribute to increase share of revenue of
automobile industry by increasing the demand of cars. As per statistical data, due to
innovation of electric cars, there is a high increase in demand that helps GM Motors too
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enhance its sales. Due to shift in demographics i.e. movement of people in developed
area, UK, Norway, US and other developed countries, consider as the highest share
within passenger sales cars (ELECTIC VEHICLE SALES – VISUAL CAPITALIST,
2018).
Figure 1ELECTIC VEHICLE SALES – VISUAL CAPITALIST, 2018
Thus, from all over the analysis of factors, it has been analysed that changes in price and
preferences of customers has highly affected the demand of GM vehicles (Ramanadham, 2019).
The highly innovation in cars like fuel efficiency, plug-in hybrid vehicles, safe-driving and more,
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has helped in retaining the preference of customers towards its products (Girella, Tizzano and
Ferrari, 2019). This would also help in meeting their level of expectation as well. Therefore,
demand of General Motors cars is rapidly increasing at marketplace, which can be generalised
through its last ten years sales performance also, as shown below –
Sales Performance of General Motors from last ten years –
Year General Motors Annual
Revenue
(Millions of US $)
2018 $147,049
2017 $145,588
2016 $149,184
2015 $135,725
2014 $155,929
2013 $155,427
2012 $152,256
2011 $150,276
2010 $135,592
2009 $104,589
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2008 $148,979
3. How factors influence the products and services of General Motors
As there are number of factors present like consumer preferences, pricing of substitutes and
complements etc. affect the demand of cars of General Motors, in both positive and negative way
(Eber, Vega and Grant, 2019). Therefore, to meet over such challenges and sustain its brand
image, this company constantly make changes in products and services. For example –
transforming the enterprise at global level to reduce threat of substitutes and complements, give
advantages to GM in turning its vision towards zero emission, zero crashes and zero congestion
(General Motors accelerate transformation, 2018). This would help in accelerating the
transformation of business strategy for product development, by driving significant cost
efficiencies and capitalizing on future of personal mobility. Along with this, respective firm also
aims for taking proactive steps for improvement of overall business performance, which include
the restructuring the organization for global product development, realignment of core strengths
and manufacturing capacity (Jankaweekool, Chaiyawat and Sinthupinyo, 2019). These actions
would help more in increasing its revenue rates.
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As per the given statistical figure, it has been analysed that due to continuous changes in
cars and add more innovative features to meet customer expectation, has helped GM in
sustaining its top most position in automotive industry (Masoomzadeh and et. al., 2019). For
transforming product development, GM is also evolving its workforce at global level and
processes to drive the world-class levels of engineering, with advanced technologies, for
improving the quality as well as features of its cars. For this process, for successful product
development, respective firm always concerning on increasing the high-quality of component
sharing across its portfolio, especially those cars which not visible as well as perceptible to
targeted audience. Along with this, expanding the usage of virtual tools for lower development of
time and costs, with integrating of its cars and propulsion engineering teams also contribute to
major factor in changing its products (Severino and Godinho Filho, 2019). General Motors also
has made investment in newer and highly efficient architectures in vehicles, especially in SUVs,
trucks and crossovers, that meets the expectation of customers. Furthermore, it is also intending
to give priority to future vehicle investments, especially within its next-generation fuel-efficient
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and battery-electric architectures, which would lead to increase its global sales volume (Severino
and Godinho Filho, 2019).
As per the law of demand, it has been analysed that higher the price of any good, lesser
the purchasing need of customers. Therefore, demand of cars or other automotive vehicles
consider as elastic in nature. Because purchasing cars comes in the category of luxury not
necessity. People can delay the purchase of new vehicle especially when its price is so high and
beyond their income level. Having a luxury car is not necessity or basic requirement of people as
compared to other products (Masoomzadeh and et. al., 2019). So, its creates a high impact on
demand of cars at marketplace, where people living in high status area demand to purchase
luxury and high innovative area. But people of underdeveloped areas or belong to middle class,
demand less of budgeted cars even.
In this regard, to boost global production of sales, General Motors need to adopt effective
pricing strategy. It includes placing products with right selling prices that provides high
incentives to customers. For capturing the mind of new car lovers General Motors need to
hammer the messaging cuts on price of cars on regular manner (Jankaweekool, Chaiyawat and
Sinthupinyo, 2019). The key message which is simple and transparent pricing, fail to gain
customer attention. For this purpose, it needs to change its message like ‘Total Value Promise’
will receive attention of luxury car lovers.
CONCLUSION
It has been concluded from the overall analysis of economic management that utilising the
key concepts and its theories, a firm can make better changes in business. By applying law of
supply and demand on products and services, a company can analyse how external factors
impact on its revenue and sales rate, as well as make changes accordingly. In context with
automotive industry, managerial economics states that this sector contributes the major role in
developing economy by selling millions of vehicles per year. Along with this, operating business
at large level, also helps in reducing unemployment rate that ultimately leads to society
development also.
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REFERENCES
Books and Journals
Severino, M. R. and Godinho Filho, M., 2019. POLCA system for supply chain management:
simulation in the automotive industry. Journal of Intelligent Manufacturing. 30(3).
pp.1271-1289.
Masoomzadeh, A. and et. al., 2019. Organizational Innovation Factors, Capabilities and
Organizational Performance in Automotive Industry. Montenegrin Journal of
Economics. 15(3). pp.83-100.
Jankaweekool, P., Chaiyawat, T. and Sinthupinyo, S., 2019. The Empirical Analysis on Supply
Chain Risk Management With Firm Capability Perspective of Thailand Automotive
Industry. International Journal of Mechanical Engineering and Technology. 10(3).
Eber, L., Vega, D. and Grant, D. B., 2019. Using Key Supplier Relationship Management to
Enable Supply Chain Risk Management in the Automotive Industry. Journal of Supply
Chain Management Research and Practice. 13(1). pp.14-14.
Ramanadham, V. V., 2019. Privatisation in the UK. Routledge.
Saritas, O., Meissner, D. and Sokolov, A., 2019. A transition management roadmap for fuel cell
electric vehicles (FCEVs). Journal of the Knowledge Economy. 10(3). pp.1183-1203.
Panayides, P. M. ed., 2019. The Routledge Handbook of Maritime Management. Routledge.
Girella, L., Tizzano, R. and Ferrari, E. R., 2019. Concepts travelling across disciplinary fields:
the case of the business model. Journal of Management and Governance, pp.1-30.
Online
The Automotive Industry: Economic Impact And Location Issues. 2019. [Online] Available
Through:<https://www.industryweek.com/global-economy/automotive-industry-
economic-impact-and-location-issues>.
ELECTIC VEHICLE SALES – VISUAL CAPITALIST. 2018 [Online] Available Through:<
https://dutchreview.com/culture/society/5-illuminating-charts-from-visual-capitalist-how-
does-the-netherlands-rank/attachment/electic-vehicle-sales-visual-capitalist/>.
General Motors accelerate transformation. 2018. [Online] Available Through:
<https://investor.gm.com/news-releases/news-release-details/general-motors-accelerates-
transformation>
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