A Nation on Wheels

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The automobile industry has brought the United States economic growth due to the impact that automobiles have made on society. There has been a plethora of jobs associated with the auto industry, including manufacturing, auto repairs, insurance, and the development of roads, sales, and auto parts to enhance vehicles. Cars, trucks, and SUVs’ have become a way of life for people and have made an additional economic impact by becoming the primary means of transportation for consumers to commute to and from work, vacations, and travel between destinations. Most family households live on a budget and they must make the decision of how much of their budget they can allocate to transportation costs. The automotive industry is considered elastic as the prices fluctuate depending on supply and demand. This product, the automobile, has become a necessity of life in current day, whereas at its inception, owning a vehicle was a luxury. At that time, because there were other means of transportation the automobile demand was low making the price of autos elastic. As the auto industry grew over the years the demand became increasingly higher, more so when there was the onset of different makes and models of vehicles. While the demand for vehicles increased, the price remained stable for a time making the demand inelastic because there was not much change in the price. In current times consumers can choose from a vast amount of makes of vehicles with as many models that although the auto itself has become a necessity, some cars could be considered a luxury. For instance, it may be necessary to own a vehicle however, not a necessity to have it equipped with a sunroof, navigation systems and DVD players. Another factor that directly affects the supply and demand of autos is the price of oil inflating fuel cost so less of the population is purchasing automobiles. This directly affects the manufacturing of how many vehicles are being produced. Therefore, the price of cars increases because the demand is low making the price elasticity of demand elastic. Consumers are purchasing more fuel-efficient A Nation on Wheels 3

foreign cars, which are an alternative substitute, allowing consumers to still have the new car they desire at a lesser cost. Some American consumers have difficulty buying foreign made imports but because having a car is a necessity to most people, many have had to purchase what best suits their personal and financial needs. The price elasticity of supply in the auto industry is dependent on how many of certain types of vehicles are available. For instance, currently with high fuel prices, gas guzzling SUV’s and trucks are not in great demand. However, the automakers have plenty of them. It would be common to think that they would be offering discounts, rebates and early lease turn in deals in an effort to sell their supply, but this is not the case. General Motors and Chrysler have announced that they will no longer be in the leasing business. This is due to the high residual values that were placed on many of the vehicles giving consumers a low payment to fit within their household budget, now that these leases are coming in GM and Chrysler are taking a large loss and are having difficulty selling the used vehicles. Ford on the other hand has not yet gotten out of the leasing business yet, but they are not making leasing attractive to consumers and are offering better incentives to purchase a vehicle. Some consumers are of the opinion that the price of vehicles has been inflated for such a long time that the car companies are offering incentives to make the consumers feel like they are getting a great deal, but truly they are purchasing the vehicle for what it should be sold for. The auto companies may do this for a while longer but eventually they will have to begin bringing the car prices down because typical household budgets will not accommodate a four, five or six hundred dollar car payment. The auto industry and...
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