This individual contemporary economic analysis is based on the article “South Australia stunned as GM announces Holden’s closure in Adelaide in 2017” published by news.com.au on 12 December 2013. The article reported that because of the significant after-tax operating loss, consumers’ performances shift and high production cost, the Productivity Commission that GM in Detroit decided to close operations in Australia. Why Holden will shutdown and leave out of the country?
What have been done in order to save Holden?
What about the other manufacturer (TOYOTA) in Australia?
This analysis will discuss the past and current situation of Holden in Australia vehicle market. Furthermore, whether are the economics policies and strategies of Holden consistent to the economic theories or not will be analysis. The future Australia vehicle market will be looked to at the end.
2.0 Economic Analysis
2.1 Demand and Supply
In the past five years, all of the domestic and global car manufacturers were struggling with the contraction of car demanding. Due to the fears of the future economy, customers postponed to purchase new vehicles in the world. In Australia, smaller and more fuel-efficient cars started to be the first choice for the local consumers while the main stream of the market is second-hand vehicle. Because of these reasons, the sales value of the core products of Holden which traditionally known as large, powerful and fuel-inefficient are declining (Ibisworld 2013). Figure 2.1 (a) reveals that the price of substitute goods, such as the smaller and fuel-efficient cars makes the car demand curve shifting. Environmental concerns and rocketing petrol price are the other vital factors can be considered. The trailers advertised for these small-cars with high frequency. The contents of the advertisings are focus on the fuel-efficient and environment friendly that guide consumers pay for the small-cars instead of large car. Consumers began to prefer the low emission care much more than traditional powerful Holden cars. The demand curve shifted to left side. As a result, a production surplus was appeared. The costs and efficiency of production in Australia can not compete against the import vehicles from other markets. The vehicles which made in Thailand and Japan cost much lower than Australian local made vehicles. With the increasing of the Australian dollar, the price of the imported cars decreased continuously. With the reduced demand for traditional large cars, Holden reduced the quantity of the large cars (Ibisworld 2013). Depends on the Figure 2.1 (b), a new equilibrium point was created by the leftward shift of the supply curve. 2.2 Elasticity
According to the text book, motor vehicles have an elastic demand of 1.14 (McTaggart et al, 2013). The Figure 2.2(a) shows that the price change is highly affected the demand of the vehicle. Motor vehicle manufacturers are having a tough time for these days. In the past five years, the annual growth of the vehicle industry revenue was -3.8% (Ibisworld 2013). Meanwhile, during past five years domestic manufacturers faced with the falling demand and struggled with profit maintaining. The increasing demands of smaller and fuel-efficient vehicles give the domestic manufacturers a hope to help them remain competitive and profits (Ibisworld 2013). Cross-elasticity of vehicles indicated that the increasing of the petrol price, consumers will start to shift their attention to the fuel-efficient cars. From 2007 to 2008, the sales value of small cars increased 4% while the large cars bought decreased from 11,115 to 9805 (McTaggart et al, 2013). The curve in Figure 2.2 (b) means that small and fuel-efficient cars are the substitute for the traditional Holden large cars. Figure 2.2 (c) as another cross-elasticity shows that the increase of the smaller and fuel-efficient car demand are influenced by the cost reduces of the substitute goods. The previous elasticity analysis...
References: “Holden business report 2012”, 2013. GM Holden Ltd. http://www.holden.com.au/resources/documents/Holden_Business_Report_2012.pdf
"Holden to Build New Small Car in Australia." 2008.AAP Finance News Wire, Dec 22
IBISWorld. 2013. Newspaper Publishing in Australia. http://www.ibisworld.com.au/
McTaggart, Douglas, Christopher Findlay, and Michael Parkin
Chart 2.5 Major players in Australia Vehicle Market. Data Source: IBISworld (2013)
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