Taking into account either capital, land or labour in the automotive industry, it is important to understand the role of each component towards economic development. In my opinion, labour is more important than land and capital as the automotive industry cannot prosper without a skilled work force. Actually, increase in production capacity is possible when there is an increase in the capital of an economy. Therefore, logically capital is derived from land and labour. In fact, capital could also increase the productivity of labour to ensure a smooth production process but nevertheless capital should be ranked as second. Land would be the least important being a different sort of economic input although land is subjected to the same marginal process valuation.
Recommendations on ways to reduce long run cost of labour for the automotive industry would be business process of reengineering. Since the process revolves around customer needs, the industry would have an appropriate focus in the business. Besides that, strategic view of operational procedures could be achieved through radical inquiries regarding processes to be improved and as to how things could be done (Toh & Serene, 2016). Several functions could be coordinated and integrated immediately through business process of reengineering. In fact, organizational complexity could be reduced as unnecessary activities would be eliminated (Otavio Peixoto, 2017). This process also eliminates delay, unessential phases of operations and management providing improved viability and adequacy to the industry. However, the disadvantages are this process depends on factors like size and availability of resources and it might not suit every business as it benefits larger organizations. The efficiency of one department could be improved at the expense of the overall process in some cases. When it comes to getting job done error-free it could replace humans posing as a real threat to jobs.
From the aspect of capital, merger with larger and better run international automotive makers could reduce long run cost. The automotive industry would be able to deal with the threat of multinationals and compete on an international scale through merger which is really important in this era of global markets. Furthermore, a merger encourages more innovation besides giving more scope to tolerate any failure. The industry could have greater funds for research and development besides being profitable. In order to discover new products and technology, it would be important to invest in research and development and a merger would definitely benefit the industry in the long run. Merger would give rise to potential economies of scale which includes bulk buying enabling lower average costs of raw materials needed (J. Dargay, 2016). Moreover, investment of larger machines would be efficiently spread over a larger output and the industry may benefit from its merger expertise as well as the brand name. However, a merger may give the new company monopoly power and reduce competition. This situation would enable the new company to increase price for consumers due to less competition and a bigger market share. Dis-economies of scale could also be experienced by the industry from the increased size of the larger company. It may also be difficult to gain the synergy between two companies if the two companies have little in common (Carlson, R.L, 2018). The new bigger company may struggle to motivate workers and may also lack the same degree of control through a merger.
Looking into the land aspect, it is important for the automotive industry to build more factories to reduce long run cost. Even a relatively small factory is an engine that generates economy activity. Prospect of jobs would be high if the factory is located in an economically depressed area. However, in a more prosperous area, the industry might need to face negative publicity if the wages and benefits do not meet with the expectation (Rachael, S., 2019). A potential disadvantage would include the impact on the environment. This is because the by-products may pollute the soil, water or air and the only option available would be to generate less waste.
The automotive industry should also work towards positive changes in the near future by utilising some great opportunities and strategies in reducing long run cost that would benefit the company. The industry should mainly work on expanding their market. Specific models could be launched to gain a strong market. Besides that, the industry should work more on a diversified product catalogue by creating different type of models in the long run besides looking into hybrid electrical cars through huge investments in technology. If fuel price increases tremendously, the industry could consider the need of launching hybrid cars to stay significant in the market. In fact, the industry could consider introducing luxury cars which would target the upper-class society and also providing good coverage in terms of branding.
In conclusion, based on the long-run analysis by the World of Economic Affairs, it seems that there is a positive relationship between inflation and fuel price with revenue. Hence, the fuel price and increase in inflation rate to a certain extent has an effect on the automotive industry’s sales revenue. However, fuel price has only a temporary effect on car purchasing. It is important to know that the car sale is dependent on the GDP and thus good income position would be a contributing factor towards the increase in car sales globally. However, the car sales will decrease if the inflation rate is high. This is because, the economic level in each country depends on the GDP per capita (World Bank, 2020). It is significant that the GDP affects the car sales and thus policy maker in each country should focus more on both the GDP and inflation rate in an attempt to increase sales in the automotive industry.
- Dargay, S. (2016), “Forecasting automobile sales”, Management Research News, 32(7): 670-682.
- Otavio Peixoto. (2017). Long-Range Economic Planning: Adding A Key Ingredient to Development Recipe, Retrieved from the World Wide Web: http://www.erf.org.eg/nletter/oct201702.asp.
- Rachael, L., Bernard, S. (2019), Emerging issues in car purchasing decision. Academic Research International, 5(5), 169-175.
- Toh, Serene. (2016), Factors Affecting the Demand for Cars. Faculty of Economics and Business, Harvard University. Final year project, 1-80.
- Umble, M M. & Carlson, R.L (2018). Statistical Demand Functions for Automobiles and Their Use for Forecasting in an Energy Crisis.Vol.53. No.2.pp.193-204.
- World Bank (2020), Global Economic Monitor: Repositioning for Growth.