Explain, providing appropriate examples, why car manufacturers are constantly introducing new models.
Modern market scenario of the worldwide economy has been changing dramatically, which has been triggered by the development in technology, sustainable policies from the government and firms along with the ever-changing market scenario (Mokyr, 2016). Besides this, change in demand, taste and preference of the buyers are one of the main reasons that has catapulted the change in the world economy. It has been observed since 2012, that world economy is growing at a slower rate due to prevailing recession, reduction in demand and various other economic as well as political issues; however, car industry is such a sector that has been cannon balling the world economy growth. During the 2014 to 2015 growth rate of world economy was 2.814% and 2.826% respectively, which is quite low in front of the annual average growth rate of 4% during the same period (Pinder, 2017).
The enormous change that the car business has experienced spins around four wide innovation usages, which are in particular diverse mobility, connectivity, autonomous driving and electrification (Antikainen, 2017). Well, though the car industry has exhibited certain amount of growth during the past years, however one of the main questions is still alive that why auto producers are continually presenting new models. This can be replied with the two most plausible reasons that are to maintain a strategic distance from the cannibalization of the past model and furthermore to compensate the fall in the gross offers of the old models. This specific examination expects to investigate the likely reasons with respect to why the automakers have been shortening the life cycle of their items or why they have been always utilizing new models.
One of the growing industries around the world is car industry, which has been facing boom since the year 2013. It has played and playing a crucial role in developing the world economy by producing job opportunities, international trade and foreign investment.
This factor has effectively helped the economies around the world to grow with a positive annual average growth rate of 2.826% (Cerutti, Dagher & Dell’Aricia, 2017). According to the figure 1, it can clearly be seen that automobile industry has been growing and the market value of the automobile industry is steadily rising. This can be considered as one of the main reasons that the automakers have been introducing new car models round the years. A detailed analysis of the possible reasons that lead to the generation of newer models is mentioned below.
Market analysis of car industry
Since the mass production of Model T by the American car producer back in 1908, car industry has revolutionized itself largely to become where it is today. The car market is an oligopoly market, where 7 to 8 key manufactures are the main players in market who enjoys major chunk of the world automobile market share (Cano-Kollmann et al., 2017). Presently the car industry introduces various models every year because it is considered as their lifeline of the survival, which can be derived by analyzing the car industry with the SWOT model.
It can clearly be seen that evolution of the car industry lies in the introduction of new models because newer models fulfils the requirement gap of the previous models, moreover a new model gives new opportunities and services to try out. However, according to the SWOT analysis it can be envisaged that introduction of new model brings in more competition in the car industry and brings in environmental concerns. SWOT analysis also suggests that if the carmaker do not introduce newer model in the market, then they will lose their market because other brands will capture the market share with their products that have competitive advantage (Schulz & Muller, 2017). Addressing the customer preference and demand is another important criterion that the car manufacturers need to consider, owing to the fact that it is the only way, which can generate more sales and more revenue on behalf of them. Thus, analyzing the car market it can clearly be seen that introducing new models is highly necessary for the survival of the car producers.
Car has both the psychological and economical effect on the society and thus the possible reasons of introducing new car models are divided into two sections, which are psychological reasons and next is economic requirement.
Car is one of the most useful tools that everyone need in their daily life. It not only the best ever means of transportation, which is efficient, eco friendly and customizable but also helps to reach people from one place to another place easily. However, from being a means of transportation, cars now have become an amusement for the males, demonstrator of class for the wealthier people and hobbies for the car enthusiasts. According to the Busse et al. (2015), these psychological factors lead the people to buy new car models, which ultimately generate appreciation for the car manufacturers to introduce new model.
Possible reason of introducing new car models
The car business has experienced financial changes over the most recent couple of years. The real players of the economy have realized these progressions. The car business overall has in the current past and will experience enormous change because of the new patterns and difficulties that will influence the presence of the individual automakers (Schulz and Müller, 2016). To comprehend with reference to why the automakers have been continually presenting new models, at in the first place, the central comprehension of the life cycle of a specific item should be caught on. The life cycle of an item can be normally separated into five particular stages. These are (Engel et al., 2017):
- Penetration of the market
- Product advertise immersion
The achievement of a specific item can be measured by the straightforward sum by which the income picked up from the item surpasses the aggregate cost of operations caused in connection to that specific item. The ensuing benefit that is earned may not be the same or uniform for the duration of the life cycle of every item and thus the distinctive stages that an item experiences have its own particular favourable circumstances and issues (Onat et al., 2014). For example, a model that is in the period of development appreciates a specific request in the market and such an advantage proceeds until the point that the item immersion hits the market. Accordingly, it is obviously evident that each of these stages will require an unmistakable arrangement or procedure for advertising, financing and powerful administration of the specific item (Hartley, 2017).
A specific research directed in the comparable field demonstrated that the life cycle of an item in the created or propel nations has perpetually diminished from eight years to around four years. Indeed, the aggregate time taken for the advancement of a pristine model has been abbreviated from a scope of four years to 25 months and has been additionally gone for decreasing it straightaway to 20 months (Kuchler et al., 2017).
Keeping in mind the end goal to comprehend the issue considerably more plainly a specific case has been taken up. Portage, being a lead auto producer in the separate business has presented their most recent age Fiesta, which has constrained its clients to believe that brief period had gone after the presentation of the past model. The specialists have recorded down various purposes behind the shortening of the life cycle of the items by such measures.
Psychological reason of introducing new car models
Coming to the next perspective, Car production has been growing at a steady rate since the 2010. If the present trend persists, then the rate of growth of car production will reach 100,000,000 cars every year. This will not only bring in more employment but also enhance the GDP of the country in the cyclical manner as expressed by the figure 4.
Introducing new cars have effects on both the economic and socio performance of an economy. New car introduction leads to higher amount of research and development and higher amount of employment. Rise in employment leads to rise in income of the individuals resulting rise in GDP. Besides this, introduction of new cars leads to developing of such technologies that are environment friendly and reduces the negative externalities of the cars (Fontaras et al., 2014).
It can be seen that world economy has been growing at a steady growth rate of 2.826% and the economy is achieving pace in growth of GDP since the recession took place back in 2008 (Cerutti, Dagher & Dell’Aricia, 2017).
In the year, 2009 to 2010 the economy had faced the highest growth rate in the last decade owing to the economic reform by the respective governments and since then, the world economy has been growing at a steady rate. It is expected that world economy will grow at a 3% annual growth rate owing to employment generation, rise in international business, higher rate of research and development and introduction of the eco friendly technology, which will aid to have a sustainable growth (Blanchard & Daniel, 2013). According to the Calabrese (2016), car industry will provide more than 7% of employment in the total scope of employment generated worldwide and car industry has provided significantly in producing generating eco friendly technologies. With introduction of new car models, scope of generating new jobs and promoting econ friendly vehicles will also get aggravated, which entails generating new car model is important and if everything goes according to the forecast, then it will lead to a stable and sustainable world economy.
Comparing the world GDP growth with the growth rate in car industry, it can be seen that as the world economy is evolving from the recession of 2008, growth of the automobile industry is also rising (Bishop & Stedman, 2014). Observing the above figure closely, it can be seen that during the 2009 to 2010 car industry has faced highest growth, owing to the fact that it has generated highest amount of jobs during this period. Thus to sustain in the market, car makers were forced to introduce newer models that attracted more customers and enhanced the profit of the firms. The same model is still followed by the OEM manufacturers of the automobile industry and this may be possible reason of generating new car models (Ottemöller & Friedrich, 2017).
Economic requirement of new cars
Auto industry is an ever-changing industry that comes up with new models round the year. Each car contains new technologies, facilities and service but the industry is oligopolistic market that makes it a highly profitable business. The car industry deals with the requirement of the buyer’s taste and preference, thus the automakers has to keep in mind what the customers need. From the above discussion it can be perceived that the rate of advancement in the auto business have expanded in the current circumstances and so as to stay aware of such development needs the auto producers need to always present new models in the market. The automakers likewise confront the testing errand of reacting to the consistently changing requests of the clients and keep an eye towards the moves made up by his rivals to conform to such requests. The shortening of the life cycle of an item additionally initiate the auto producers to accomplish the make back the initial investment at a much beginning time. Therefore, it can be obviously presumed that auto producers always present new models in the market significantly to keep up with the changing tastes and inclinations of the customers.
To conclude it can be said that, it is important for the car industry to introduce new models, because it is the means of their survival. Without new models, automakers will not be able to generate enough amount of profit to sustain in the industry and new models bring in more prospect buyers that aid the carmakers to grow their business. However, it has been important to consider the environmental aspect, when it comes to introducing newer car models. The automakers have to be potent enough so that they can produce eco friendly vehicles because the future lies in the innovation of environment friendly cars.
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