Essay Sample on Supply and Demand in American Auto Industry

The United States is always considered to be a key player in the automotive market in the world. Notably, there has been a steady increase in demand for light vehicles in the United States, and 17.2 million units reflected this in the year 2018. Therefore, the United States holds the second-largest market for the production of vehicles globally. The advancement of technology has contributed significantly to the rise of supply and demand of automobiles in the world where most countries, particularly the United States, have infused innovations in the industry to provide a high user experience. Moreover, the prevailing challenges and opportunities in the contemporary business environment have resulted in a need to conduct comprehensive research and development to guarantee the industry's responsiveness. The export of vehicles has also been much more in the country in the year of 2018 ("Edmunds warns of a tough 2019 for U.S. auto industry as sales slide for the second time since Great Recession and profits shrink", 2019). Understandably, automobile manufacturers in the United States have been faced with supply chain disruptions resulting from issues revolving around tariffs, aluminum, and steel.

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Literature Review

The automobile industry in the U.S has experienced a wide range of issues such as increased competition from other notable automakers like Japan, disruptions in fuel economy, and the imposition of tariffs. Moreover, the advancement of technology has significantly shaped the supply and demand for automobiles across the world, where most consumers always prefer high-quality and fuel-efficient automobiles. However, the key threat to the automotive industry in the United States is the planned imposition of tariffs by the Trump administration on cars' importation from the European Union countries ("Car & Automobile Manufacturing Industry in the U.S. - Market Research Report," 2019). Undoubtedly, it has been established that the imposition of tariffs will substantially benefit other rivals in the industry, such as China. Eisenstein has noted that the potential infusion of electrification in the automobile industry will significantly shape the supply and demand of automobiles across the world ("A.L. Global Detroit: Dark times ahead for U.S. automotive industry," 2019). China has made strides in producing electric vehicles that are expected to control emissions and hence promote a sustainable environment.

Impact of Tariff on Demand and Supply of Automobile

Despite the recovery of the automobile industry after the adverse effects of the 2008 global economic crisis, the growth of the industry has been impeded by other prevailing trends, such as the imposition of tariffs. Alliance of Automobile Manufacturers has reported that the price of imported vehicles has increased in the United States by $5800 after tariffs are being imposed. Consumers now possess the tendency to change their preferences and move to the use of used cars. More critically, following the claims that China was involved in developing discriminatory policies to curtail the U.S commerce's influence, the United States government has reacted by imposing approximately 25% import tariffs on Chinese products. Notably, the imposition of tariffs has disrupted the global market which is majorly driven by the forces of supply and demand. In light of this, there has been a steady increase in the repairing of old cars as most consumers often find it more expensive to purchase new cars from the market. Therefore, the demand for new vehicles has substantially reduced because of the imposition of tariffs ("U.S. Auto Tariffs Would Have Serious Impact on Global Supply Chains," 2019).

Furthermore, some of the world's leading automobile manufacturers such as China have been adversely affected by the new protectionist initiatives that have been developed and implemented by Trump's administration. The initiatives have resulted in instability in the domestic supply of used cars in the United States. Worse still, the increased prices emanating from the imposition of tariffs has significantly reduced the consumption level of automobiles in the U.S. It is worth noting that, if the protectionist policies are actively pursued, there will be reduced efficiency in the automobile industry in the long run as the supply and demand of automobiles will be negatively affected resulting in high prices.

Analysis of the Sale of Light Vehicles in the U.S.

Understandably, the export of light vehicles' demand in the United States has been high, especially through the analysis of the 2018 sales. The increased demand for light vehicles has been attributed to improvements in the domestic economy and the global decline in fuel prices. The following graph is being illustrated based on the automobiles of the U.S.

The above graph indicates that the highest sale of light vehicles in the United States was recorded in the year 2016, with the lowest recorded in 2009. Understandably, it can be seen from the graph that the sales of light vehicles have been experiencing ups and downs owing to different economic circumstances of the periods ("U.S. automobile registrations from 1999 to 2017", 2019). Notably, the sale has increased substantially, and the condition of the light vehicle sale has been on the rise. Evidence has revealed that consumer confidence is always a factor contributing to either increased or decreased sales of light vehicles in the United States. More significantly, the economic data most of the time do get tracked by some of the companies and industries which operate under the North American Industry Classification System. The classification system has provided excellent support to the Bureau of Economic Analysis by conducting gross domestic product reports quarterly, and this has demonstrated the contribution of motor vehicles and some of its parts in the automobile industry.

Additionally, sales have created a significant impact on other sectors, such as oil, beverages, and food. Furthermore, the report making process has indicated that the United States has been ranked the second most producer in the automobile industry, and China lies after that in terms of the total number of vehicles being produced by the countries per year (Penny, 1994). The total production of passenger and commercial vehicles in the year 2017 by the U.S. stood at around 11.19 million and the output of China this year if 29.02 million.

Further, the automakers have adapted well to the world despite the ups and downs of the sale of the automobile in the United States. Considering the increased awareness among the consumers of automobiles in the United States, they have gained a deep understanding of the prevailing economic circumstances in the automotive sector, and that has significantly influenced sales. It is worth noting that the automobile industry in the United States does follow an oligopoly market structure because there are a large number of firms being involved in the industry. Also, the rise in cost because of the imposition of tariffs has consequently created barriers to entry in the industry (Pinelopi, 2019).

Performance of the Automobile Industry At Present

Notably, the U.S.'s automobile industry has exported approximately1.8 million light vehicles, including the medium-sized trucks. The distribution of the light vehicles occurred to about 200 markets in the world. More importantly, the performance of the automobile industry in the U.S. has significantly improved because of the country's consumer market, alongside the high-skilled workforce, advanced investment policies, and improved infrastructural development. In light of this, therefore, the United States has edged most countries in terms of the development of the automobile industry in the 21st century.

From the 2018 data, the U.S. automobile industry registered the annual sale of 17.3 million, and this surpassed the projected sales in the industry over the period. However, recent economic events have created uncertainties in the automobile industry in 2019 in the United States. The fall of the economy of China and the U.S. has come into notice despite the twists and turns that it has faced in its way. The impact of the new form of technologies is also noticed and this stands out to be the major factor for the increase in demand in the automobile sector in the future. More significantly, there are plans by the United States to increase its investment in the automobile industry and embrace more technological advancement to result in high-quality production. It is instructive to note that, there is a need to appreciate that there are many of the pros and cons of the automobile industry in U.S. Most economists in the United States have asserted that the country is facing quite an uncertainty in the automobile industry, and that has made it difficult to project the future of the industry. Notably, the changes in technology, electric, and of autonomous vehicles are responsible for creating such disastrous conditions of the automobile industry in the United States.

Additionally, the pattern of trade in the country has resulted in different challenges that have affected the industry. The key crucial reason behind the underlying challenges is the imposition of tariffs on the imports of cars from the European Union, enacted by U.S. President Donald Trump. Despite the observed recent decline in the economy of the United States and China compared to 2018, the countries have made significant strides in the automobile industry. Undoubtedly, the recent economic conditions of the countries have lowered the consumers' confidence as there was a general expectation that the trade between the two countries will improve to the consumer's benefit. It has also been anticipated that light-vehicle sales will decline in the year 2019 to 16.9 million compared to the previous year. In the first half of the year, auto sales reduced by 2%, but this did not result in significant effects on the economy. However, the economy was prepared to face this situation and thus did not bring adverse effects after the Great Depression. Despite the decline in the automobile industry in the coming years, the United States has developed proactive measures that will guarantee a steady flow of resources in the industry to spur economic growth.

Conclusion

It is instructive to note that the automobile industry in the United States has been significantly influenced by the changes in supply and demand. The advancement of technology has played an integral role in ensuring the effective production of quality automobiles to meet the increasing global demand. More critically, considering the economic upheavals in the world, the automobile industry has been adversely affected as consumer confidence has been substantially reduced. Further, the imposition of tariffs by the Trump administration has increased the prices of the automobiles, and hence reduced demand in the United States. Also, it should be understood that the increased performance of the automobile industry in the United States is attributed to its great focus on increasing investment in the industry and increased training programs that have consequently resulted in high-skilled personnel to spur growth in the industry. It is worth noting that more growth in the automobile industry can be achieved when the U.S. develop better initiatives that will reduce trade hostilities across the world.

References

AL Global Detroit: Dark times ahead for US automotive industry. (2019). Retrieved 23 November 2019, from https://www.automotivelogistics.media/electric-vehicles/challenges-and-opportunities-for-us-automotive-industry/39131.article

Car & Automobile Manufacturing Industry in the US - Market Research Report. (2019). Retrieved 12 December 2019