Automobile Industry: Market for Passenger Cars

The number of weeks of per capita disposable income required to purchase a vehicle has varied in the range of 54 weeks in 1970 and 1987 to 46 weeks in 1979. Consumer preference for cars has remained quite unpredictable during last two decades. It has swung from large cars to small cars and back again to large cars. During periods of uncertainty, consumers become more careful spenders and defer car purchases or downgrade to cars with less expensive options. confidence level on passenger cars is highly fluctuating which is reflected in substantially greater demand for small cars after the oil price shock started in 1973 through 1980s. However, after the gasoline prices stabilized at their lower level with abundant supply, demand for larger, more expensive, gas guzzling cars has increased.

Cost Reduction

Auto makers argue that if ;the raw averages for the cost of cars were adjusted to take into account comparable equipment, safety devices, and emission control features, the number of weeks of disposable income required to purchase a car will show a sizable decline since 1970. By offering more vehicles with previously optional items as standard equipment, auto makers could unwittingly be contributing to the long-term slowdown in unit sales growth by pushing up the prices of their vehicles. The resulting lower sales volume reduces vehicle production runs and increases fixed costs per vehicle. It further boosts list prices and, in the long run, lowers the auto industry's profit.

Chrysler's approach to cost reduction is to set prices for parts and components from the outside suppliers. If the suppliers reduce costs below target levels, they may be asked to add enhancements to the system, if they find that costs exceed targeted levels in one area of the component, then savings must be realizes elsewhere in the system without compromising quality or performance.

General Motors approach to cost reduction . GM is sending teams of engineers, designers, and purchasing cost accountants to meet with teams comprised of employees at the suppliers' plant. During these one-week meetings, termed PICOS (purchased input concept optimization for suppliers) workshops, joint GM-Supplier team work methodically through a prescribed series of evaluations, and brainstorming sessions, to uncover inefficiencies, break bottlenecks, and devise solutions to be implemented by the suppliers. If any suppliers object to render proprietary cost information, or complain interference GM affords larger shares of business to obedient participants in this cost reduction plans.

Dealership

The number of franchised domestic dealers has been in a steady decline since the end of World War II. The multi-franchised dealers use extensive advertising, are willing to operate in high volume and smaller profit per vehicle sold. Though historically manufacturers took the lead in attracting customers to the dealerships, Mega-dealers are aiming to develop supermarkets for automobiles, and influencing the customer's buying decisions. Both General Motors and Chrysler are moving to consolidate their dealer bases and eliminate dealers that are unprofitable.

Original Equipment Manufacturer (OEM)

The use of electronics continues to rise. Auto makers have found that customers are willing to pay for useful electronic features, particularly those that enhance safety and performance. Such items include airbags, ant-lock breaks, traction control, and sophisticated suspensions. Demands is on rise for comforts and convenience such as heating system, six way power seats with memory features, adjustable lumber support, air conditioning , aero-dynamic racked front and rear windows with technologically advanced windshields. These windshields defrost faster in winter and reflect the sun's heat better than the conventional auto glasses. Aluminum wheels

Increased inspection program begun in several states in 1990 has necessitated greater maintenance.