Interaction of Resources Between Government, Households and Business
How Do Scarcity, Market Mechanisms, Price Elasticity, Gdp, And Foreign Exchange Affect The Launch And Subsequent Growth Of This Product?
Trade And Productivity: What Is The Effect Of Your New Product Or Product Line On Productivity, Trade, And Economic Growth?
Unemployment, Inflation, And The Business Cycle: How Does Unemployment, Inflation, And The Business Cycle Influence The Potential For Success Of Your New Product Or Product Line?
Classical And Keynesian Economics And Aggregate Supply And Demand: How Do Classical And Keynesian Economics, As Well As Aggregate Supply, Influence The Introduction Of Your New Product Or Product Line?
Ford Motor Company is one of the largest multinational automakers of the United States on America (USA) (Ford.com, 2020). It is also known as Ford. Moreover, headquarter of the company is situated in a suburb of Detroit named Dearborn of Michigan. It was established in 16th June 1903. The products offered by the company are commercial and automobiles vehicles and luxury cars. The commercial and automobile vehicles are sold under the brand Ford. In addition, the brand under, which the luxury cars are sold is Lincoln. The organization also possesses shares in other companies such as Aston Martin, Troller and Jiangling Motors. It was second best performer in the US automobile market after the General Motors in 2015 (Noori & Tatari, 2016). However, higher market competition and various economic issues lowered the profit level and share price of the company. As a result, it slashed global workforce in order to solve the problem of the declining profit level. To enhance the earnings in 2018, it went through a cost cutting measure, where it planned to reduce cost by 3 billion US dollars.
Furthermore, it also planned to curtail cost of salaried workforce by almost 10% in North America and Asia. On 25th April 2018, the decreasing profitability and demand of the passenger cars forced the company to discontinue its passenger cars in the market of the North America over the next four years. However, the service of the Mustang was only continued in the North America market (Yang et al., 2016). As of 2018, the company generated revenue of 160.33 billion US dollars. Thus, the company also shifted its focus towards the emerging market of the electric vehicles to increase profitability and market share in the industry. Electric vehicle industry is one of the vital industry of the automobile sector. The vehicles produced under the electric vehicles are powered with electric motors. Thus, these are not gasoline based vehicles, which helps to save energy and reduce the greenhouse gas emission in the environment. Ford planned to launch an all-electric SUV by 2021 named Mustang Mach-E.
Scarcity, Price Elasticity, Foreign Exchange, Gross Domestic Product(GDP) and Market Mechanisms
Government took several initiatives for the development of the electric vehicle industry. Government of USA provided financial aid for the mobility industry of the USA, which in turn helped the economy of USA to recover (Usa.gov, 2020). The sale of the plug-in electric vehicle (PEV) had quadrupled from 2012 to 2017. As of 2017, the market share of the PEV stood at just one percent. Electric vehicles are more environment friendly as the level of greenhouse gas emission is much lower than the non-electric vehicles. However, there are various limitations of the electric vehicle car, which set off its advantages. These are high initial costs and restricted battery range. To increase the market share of the electric vehicles, manufacturers adding new models into the electric vehicle sector.
The electric vehicle market of the US is dominated by the Tesla Inc. it is the single largest manufacturer of the electric vehicle in the US. In 2018, the PHEV sales were 122.1 thousand units. Moreover, the growth of the PEV sales in the US was 79% in 2018 (Tradingeconomics.com, 2020). Though, Ford stood 10th on the list of the top electric vehicle manufacturers of the US in 2018. By 2005, the company may become the second largest electric vehicles manufacturers of the US (Cano et al., 2018). The company invested a large amount in the research and development segment of the electric vehicles sector in recent years. In addition, the amount of invested was maximum in expanding its fleet of electric vehicles. In 2018, one of the model of the Ford, which placed top ten in the bestselling PEVs of the USA was the Ford Fusion Energi.
The new addition of the Ford in the electric vehicle family is Mustang Mach-E. It is new version of the Mustang. The electric vehicle will be able to target 0-60 mph in the mid-3 second range. It is an all-electric SUV. The electric and hybrid vehicles offered by the Ford loaded with many advanced features. The main feature of this range is advanced fuel saving technology. The fuel saving technology make it special and attractive to the customers. The Mustang Mach-E is also featured with zero emission, which is a major step for the environment. Therefore, use of this vehicle will be environment friendly (Hall & Lutsey, 2017). Therefore, this vehicle will also provide many other benefits to the customers. It will serve the customers in a better way in order to meet many customer’s demand. There exists rear and front motors to channelize power to all the individual wheels. Thus, it increases the capability and provides easy handling system. Thus, the electric vehicle can also perform in the snowy roads. One of the main feature that attracts the customers is luxury of space. It is the most important feature in order to make the ride better and comfortable. The interior of the car is impressively spacious with plenty of legroom. The vehicle will provide next level driving experience to the customers. Other features that it offers are smart technology, thoughtful amenities, modern design and enhanced fuel economy.
Several incentives are offered by the US government to improve the market of the electric vehicles. Thus, it would be profitable for the automakers to launch electric vehicles in presences of these offers. Moreover, for the sales of the first 200,000 electric vehicle, automakers would get a subsidy of a tax credit for consumers from $2500 to $7500 (Jenn, Springel & Gopal, 2018). The cap is already hit by the Tesla. Ford took various initiates and will also launch new electric vehicles in order to reach that cap and to get the tax benefit provided by the US government. It also led to the surge in sales of the electric vehicles in the US mobility market. It is estimated that there will be 18.7 million electric vehicles by 2030 on US roads. The main reason behind providing incentives are limiting climate change and lowering of emissions. It would also curtail the demand for the energy in US as well as world. It will be helpful in energy saving. However, the recent decision of the Trump government to impose tariffs on the imported car parts and vehicles. Thus, it would increase the price of the electric vehicles in the US market. Hence, the policies taken by the Trump may hamper the growth of the electric vehicle market of the US.
The electric vehicle is an emerging market mobility sector. Thus, the demand for the electric vehicle also increasing eventually. However, presently it is costly and limited in the US and world market (Yuksel & Michalek, 2015). There are few players in the electric vehicles market in comparison to the gasoline based vehicles. There are several companies in the field of gasoline based vehicles and these companies also have a wide range of products to cater. On the other hand, the available products of the electric vehicle is very limited. The demand of the electric vehicles are getting higher day by day. Here, scarcity of the product in the market would act in favor of the organization. Therefore, it would also help the firm to earn profits out of it. Moreover, new electric vehicles of the company would also solve the problem of the scarcity.
One of the essential feature of the economy is market mechanism. In an economy, market mechanism is associated with the decision of the consumer and producer. In addition, the consumer make decision on the basis of the maximization of the utility for their purchases. On the other hand, the decision of the producer is based on the maximization of profit for their marketing (Reifschneider, Wascher & Wilcox, 2015). Therefore, market drives the consumers and producers to take their respective decisions. The economy of US is a mixed economy, where resources are possessed by the both sectors of the economy such as public and private. To fulfill the profit maximizing motive of the producers, the product offered by the producer should meet all the demands of the customers. These vehicles are much more comfortable and environment friendly. Thus, under the market mechanism, the customer would decide to purchase these electric vehicles based on utility maximization. It would offer them with various facilities.
To analyze the market of the electric vehicle, which will be launched by the Ford, it is significant to understand the price elasticity of demand for the product (Tily, 2016). The percentage change in price with respect to change demand is represented by the price elasticity of demand. Though, the demand for the electric vehicle is increasing. The growth of demand is slowly improving. Therefore, there is a possibility that some market conditions may influence the demand for the electric vehicles. Thus, if a small change in price brings large change in demand, it is known as elastic price elasticity of demand. On the contrary, if a small change in price brings small change in demand, it is known as inelastic price elasticity of demand. The growing concern for minimizing the use of the vehicles based on the fossil-fuels. It generates large amounts of carbon dioxide into the environment, which influences the consumers to choose the electric vehicles over fossil-fuel based vehicles. Moreover, government also offering various tax incentives for using electric vehicles (Torr, 2019). Though, the demand of electric vehicle is increasing at slower pace with respect to price, there is a probability that the price of the electric vehicle may scale up due to imposition of tariff on imported vehicles and vehicles parts by the Trump administration.
Figure 1: GDP growth rate of US from 2010 to 2018
Figure 1 represents the GDP growth rate of US from 2010 to 2018. The growth of the country is fluctuating nature. In 2018, the growth rate of the country was 2.927%. Historically, the growth rate was highest in 2015 during this period. Moreover, it was lowest in 2011 during the same period. The economy faced serious economic downturn during the period of the great recession. Though, it recovered slowly in 2011 (Data.worldbank.org, 2020). On April 2018, the recovery process of the US became the second longest recovery in the history of the world. The economic crisis period brought changes in various economic indicators. These indicators are higher unemployment rate, credit crisis and higher inflation.in 2017, the country stood at 43 out of 207 countries of the world in terms of national debt, which is measured by the debt held by the public. Thus, the position of the country is not stable in terms of GDP (Michaillat & Saez, 2015). However, it is recovering slowly. Even, the government of US has also provided various aid in order to boost the electric vehicle industry.
Figure 2: The position of the US dollar
Figure 2 illustrates the position of the US dollar for last ten years. Graphically, the performance of the currency improved. In addition, the currency of the US, US dollar is also most widely used currency in the world. It is the first reserve currency of the world. Therefore, strong currency also strengthen the foreign exchange system of the country (Tradingeconomics.com, 2020). The value of the currency is also greater in terms of most of other currencies of the world. The foreign exchange market is one of the largest source of revenue for the US economy. Therefore, it would help in growth of the electric vehicle market. As a result, the new product of the Ford will also get benefitted from the foreign exchange of the US.
One of the most vital emerging market of electric vehicle contributes positively in the growth of trade, productivity and economic growth. It is projected that by 2030, there will be 18.7 million of electric vehicle on US road (Daga et al., 2017). Thus, the product of the Ford will boost the market. Even, the company also pulled back some cars from the market in order to focus more on crossovers and SUVs. The main hurdles on the way of achieving excellence in the electric vehicle segment include less variety, better range and higher price. These factors compelled the consumers to purchase gasoline based vehicles and face the consequences. However, the market for the electric vehicles getting stronger day by day in order to avoid the consequences such as state emissions cap, increasing variety of attractive electric vehicles and inducing temperatures.
Figure 3: Sales of plug-in electric vehicles from 2012 to 2018
Figure 3 represents the sale of plug-in electric vehicles from 2012 to 2018. Though, the sale of the plug-in electric vehicle was sharply drop in 2015 and it was lowest at -4%. The sale was highest in 2012 during the period. In addition, the sale of the plug-in electric vehicle was 85%, which was gradually improved from the decline of 2015 (Forbes.com, 2020).
In addition, the efficiency level of the electric vehicles are also superior. The efficiency level makes it attractive to the consumers. It is estimated that the fuel cost can be saved by using the electric vehicle over gasoline based vehicle is $5000. The operating cost of the electric vehicle is also lower (Vergis & Chen, 2015). Thus, it improves the productivity of the electric vehicles. The increasing sale of the electric vehicle also impacted the growth of the country in a positive way. The sell and purchase of electric vehicle provides various tax breaks by the government. Thus, it boosts the trade and productivity of electric vehicles. The sectors also attracted huge investments from the public sector as well as private sector. The continuous research and development also incentivize the sector dramatically. As a result, the cost of batteries of electric vehicle dropped gradually. Therefore, it would in turn curtail the price of the electric vehicles. Furthermore, the sector also may influence the others sector of the economy profoundly.
The growing use of battery in electric vehicles would enhance the production and growth of the battery industry. Ford also took new initiative to develop battery for the electric vehicles. It also planned to invest $11 billion by 2020 for the development of its electric vehicle segment. Therefore, the new product Mustang Mach-E would increase the productivity of the sector (Noori, Gardner & Tatari, 2015). As a result, it would also encourage the trade of the country. The new electric vehicle offered by the company may also exported to other countries in order to boost the trade. It would eventually impact the economic growth of the country. It would also reduce the oil expenses at a larger scale. As of 2019, the US imported 166.4 million barrels of crude oil. It would help to maintain the balance of trade. The US economy may also get rid of the burden of importing huge oil. One of the major impact of the electric vehicle offered by the Ford is cost of pollution. The country will be able to minimize the huge cost beard by the country in terms of air pollution and global warming and climate change (Lutsey, Slowik & Jin, 2016). Other than, getting benefitted from the production and sale of electric vehicle. The country will also may able to save the cost of imports, cost of climate change and global warming and cost of air pollution.
In an economy, the increase and decrease in production output of products is denoted by the business cycle. Therefore, the role of business cycle is important in order to achieve excellence in business (Zhou et al., 2015). It is measured on the basis of increase or decrease in the GDP adjusted for inflation or the real GDP. It is also known as the trade cycle or economic cycle. In order to run the product of the Ford in the market, it is essential to understand the business cycle of the US economy. The business cycle, unemployment and inflation rate may impact the business of the company. In the 4th quarter of 2008, the country witnessed business cycle of trough, which means the contraction of economy lead to a recession that may continue for years. After that, the US economy in a state of economic expansion, where economy expands at 2% to 3% and stocks also enter a bull market (Antolin-Diaz, Drechsel & Petrella, 2017). Therefore, amid this situation, there is high possibility that the launch of the new electric vehicle by the Ford would be a successful step.
Figure 4: Inflation rate of the US from 2010 to 2019
Figure 4 illustrates inflation rate of the US from 2010 to 2019. In November 2019, the consumer price inflation rate was 2.1%, which was climbed to 2.3% in December 2019. The inflation rate in the country was in line with the market forecasts. The sectors of the economy, where prices climbed up significantly include medical care services, shelter and medical care commodities (Milani, 2017). However, the energy costs rebounded from -0.6% in November to 3.4% in December. Moreover, the food inflation also scaled down from 2%to 1.8%. The core inflation rate was remain unchanged at 2.3%, which does not includes volatile items like energy and food. It was also meet the expectations of the market. During this period, the inflation rate was highest in 2012. While, it was lowest in 2015 during same period. Though, the current inflation rate would support the new business (Uribe & Schmitt-Grohé, 2017). It is essential to take necessary measures to cushion the business against the higher inflation rate. It would help the company to shift its business focus from gasoline based vehicles to electric vehicles.
Figure 5: Unemployment rate in the US from 2010 to 2019
Figure 5 shows unemployment rate in the US from 2010 to 2019. In 2019, the unemployment rate in the US was according to the market consensus. As of December 2019, the unemployment rate stood at 3.5%. In addition, currently the number of employment was 158.80 million, which was increased by 267 thousand. Whereas, the number of unemployed people also scaled down by 58 thousand. Thus, the present number of unemployed people was 5.75 million. During this period, unemployment rate was record high in 2010 (Farber & Valletta, 2015). On the contrary, the unemployment rate was record low in 2019 during the same period. In 2019, the labor force participation rate was 63.2%, which remained unchanged. One of the key factors for the development of the business is unemployment rate. Moreover, stable unemployment rate supports the business environment of the country (Omrane & Hafner, 2015). Though, the current rate of unemployment improved in the US. It may increase in future as predicted. Hence, the new product may launch by the company along with required measures to protect it from economic turmoil.
The classical economics deals with the largely self-regulated systems, which is governed by the natural laws of exchange and production (Goodwin et al., 2015). It is basically a theory of market economies. Under this theory, the concept of economics is mainly depends on accumulation of capital and division of labor. The theory of classical economics is supported by the idea of free trade in terms of international trade. The idea of division of labor and accumulation of capital can be maintained in the US market while launching the new electric vehicle. Under Keynesian economics, the competition plays an important role. There are several players in the market of electric vehicle (Balcilar et al., 2018). Therefore, it would not lead to monopoly by any automakers. Hence, the product that will be launched by the Ford, will not be affected. Hence, there is a significant role of the Keynesian economics on the growth of the new product.
The total spending of the economy is denoted by the theory of Keynesian economics. It also shows the impacts of the total spending on the inflation and output of the economy. Under Keynesian economic theory, the stabilization of the economy can be achieved by influencing aggregate demand with the help of government intervention (Li et al., 2017). In order to avoid any kind of economic consequences, government policies comes into effect to influence the demand. Therefore, the government policies and initiates would ensure the demand for the electric vehicles in the US market. The major investment decision made by the US government and tax incentives provided by them would enhance the market demand for the electric vehicle. Thus, the launch of the Mustang Mach-E by the Ford would be benefited (Nautz & Strohsal, 2015). In addition, the government may also address other economic issues with the help of fiscal and monetary policies.
The amount of goods and services produced in an economy within a particular time and within in a particular period is known as the aggregate supply (Caggiano, Castelnuovo & Figueres, 2017). Hence the total production of the economy is denoted by the aggregate supply. On the other hand, the amount of goods and services demanded in an economy within a particular time and within a particular period is called as aggregate demand. Therefore, it is one of the significant aspect of the business. The growth of the business depends on the overall aggregate demand and aggregate supply of the product. Therefore, if the demand for the electric vehicle like Mustang Mach-E falls, it would affect the growth of the business. Likewise, the company also need to ensure smooth functioning in the supply of the product to stable the market for the product.
Conclusion and Outcome
One of the major automaker of the United States, Ford planned to shift its focus from the gasoline based vehicles to electric vehicles. The company mainly specializes in gasoline based cars. In addition, the market for the electric vehicle is emerging one. Thus, it wanted to enter the emerging market and tap the opportunity. It planned launch an all-electric SUV named Mustang Mach-E to enter the market (Van Zandweghe, 2015). It planned for a successful launch of its product. Though, there are major players in the electric vehicle market. The attractive and unique features of the SUV, may make it best option for the customers. One of the existing largest players in the electric vehicle market is Tesla. In order to compete with big competitors, Ford took various initiatives other than plan for a launch of electric vehicle. The company planned for huge investments in this segment of the business. Moreover, it also focuses on developing new battery for the electric vehicles. The role of the economic condition of the US is pivotal in the growth of the business of the Ford. Presently, the demand for the electric vehicle is very high due to tax benefits and emission cap.
The efficiency of the vehicles are also superior compared to gasoline based vehicles. The US government offered some tax incentives for the consumers and producers to use zero emission based electric vehicles. Government also provided financial aid for the development of the sector. Thus, the plan of the Ford to launch an electric vehicle would be successful. However, there are some economic factors that may hamper the market and growth of the electric vehicle. These are unemployment rate, business cycle, inflation, foreign exchange and GDP. Presently, the US economy is somewhat stable despite some issues. Therefore, it would act in favor of the company and its new product. On the other hand, there is significant impact of the product on the trade, productivity and economic growth of the country (Xenos, 2017). The US economy may able to curtail the expenses for the import of oil. In addition, it may also reduce the cost for air pollution. The export industry may also boom due to sale of electric vehicles. Therefore, it would impact the trade, productivity as well as economic growth of the country.
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