Demand, Supply, And Elasticity Of Honda Motor Company

Running Head: DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY 1

Demand, Supply, and Elasticity of Honda Motor Company

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DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

Table of Contents

Demand, Supply, and Elasticity of Honda Motor Company ........................................................................ 3

Introduction ................................................................................................ Error! Bookmark not defined.

Demand Analysis ...................................................................................................................................... 4

Supply analysis ......................................................................................................................................... 4

Elasticity analysis...................................................................................................................................... 5

Conclusion ................................................................................................................................................ 6

Honda Motor Company Production Outline ................................................................................................. 6

Motor Cycles ............................................................................................................................................. 6

Automobiles .............................................................................................................................................. 6

Technological/Electrical products. ............................................................................................................ 7

The Honda Jets .......................................................................................................................................... 7

Honda Motor Company Production costs ..................................................................................................... 7

FC, VC and ATC Curve movements ........................................................................................................ 7

Honda Motor Company Market Structure .................................................................................................... 8

Target Market............................................................................................................................................ 9

Market Challenges .................................................................................................................................... 9

How to increase revenue in the short/long run ....................................................................................... 10

Changes in the objectives of Honda Motor Company ................................................................................ 10

Profits ...................................................................................................................................................... 10

Sales maximization ................................................................................................................................. 11

Increasing market share .......................................................................................................................... 11

Building a good business reputation ....................................................................................................... 12

Financial stability and liquidity .............................................................................................................. 12

Maintenance of good labor relations ....................................................................................................... 12

Job satisfaction ........................................................................................................................................ 12

Leisure and peace of mind ......................................................................... Error! Bookmark not defined.

References ................................................................................................................................................... 13

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

Demand, Supply, and Elasticity of Honda Motor Company

The Honda motor company is a multinational company founded in 1948. The company

manufactures diverse products. Since 1964, its principal production has been the manufacturing

of motorcycles and combustion engines. Honda motorcycle company became the biggest and

best selling Japan Motorcycle producer. Currently, the Honda motor Company produces

approximately fifteen million Engines. The company has also diversified in what it

manufactures, and now they make electrical generators, lawnmowers, aircraft, motor vehicles, jet

engines, motorcycles, solar cells as well as water pumps. Honda started testing its aircraft

engines in 1995; this led to the formation of a subsidiary Honda Aircraft Company. For the

Company’s future, it is currently working on alternative energy automobiles as well as power

production (Abernathy & Ronan, 1980).

The Honda Motor Company is one of the biggest conglomerates globally; the company

generated approximately 121.5 US Dollars as revenue in the year 2016. And most of this revenue

came as a result of the sale of automobiles since the company’s global sales got to its peak in the

decade 2005 to 2015. In the fiscal year 2018, so far the company has sold over 5.1 million

automobiles, and this reflects very significant growth in comparison to the year 2012 where the

units sold were slightly above 30million units. By 2022, the company has planned to increase the

production of its light vehicles to over 5.8 million units up from 4.6 million units realized in

2015. The sales growth achieved in the last few years has brought a positive influence on the

worldwide sales. This growth has been due to the high sales witnessed in North America, one of

best Hondas automobile market. By March 2018, the company had captured up to 8.8% market

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

share in the US, and this shows that the company has positioned itself for significant growth

(Anderson & Markides, 2007).

Demand Analysis

The main factors that affect the demand for Honda products are the target markets

income and their preferences as these causes lower or higher volumes to be demanded based on

what the price is. The above factors, in general, are about one's willingness and ability to buy. If

one is willing to buy, then tastes and preferences come in. For instance, lecturers can buy cars

because they have better income compared to their students. However, based on their income,

the lecturers will have to choose which car and which brand to buy based on what they can

afford. They will have to choose between car brands to buy what is within one's budget. Also,

the family composition and size may determine whether one needs to buy a car or not (Rose et

al., 2010).

The ceteris paribus is also another factor which affects demand; this happens when the

demand curve determined by the demanded quantities and the prices having the assumption that

no other element will change since they are assumed to be constant (Collin, 2012).

Supply analysis

One of the determining factors of the Honda supply is the movement of the yen against

currencies such as the Euro and the US dollar. Profits are low when the yen appreciates against

the dollar, and the euro since the valuation multiples of the company goes down. The price of the

Honda also has an impact on the supply. For instance, the Hayate Scooter by Suzuki is similar to

Honda's Air Blade. The Hayate Scooter came into the market after Honda created a shortage for

the Air Blade to increase the price. This scooter did not work for them as the customers had to

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

make an order and wait for a month or two to get the Air Blade Scooter. Suzuki took advantage

of the situation came up with the Hayate Scooter which is almost similar to the Air Blade. This

situation led to a decrease in sales and the profits as well. Honda has many competitors,

therefore; it ensures that the product given to its consumers is both user and pocket-friendly for

the target group. Efficiency is also vital when determining the target group and type of model.

This efficiency makes Honda invest in modern technology to thrive in the competitive market.

Fuel efficiency is part of their strategy to increase demand and in the long run, a supply of their

products. Price of inputs also plays a significant role in market supply. Honda's suppliers are

carefully selected, and this depends on quality and costs of their supplies. The pricing of the

company's products is as a result of its target group (Svensson, 2000).

Elasticity analysis

Honda has products that suit different ages as well as pockets; however, competition from

Toyota, Ford as well as General Motors has kept them on toes. This targetting has led to the

development of a strong R& D to enable the production of relevant products within the market.

There is always a substitute for products in the market, and this is what competitors also use to

stay relevant. When Honda comes up with a product that suits its clients, competitors also come

up with a cheaper or even more user-friendly to the targeted group. Honda ensures that they

balance the demand as well as supply to improve their market share as well as remain relevant

(Busse et al., 2013). They ensure that their products are not only friendly to the client but also to

the environment. Honda also looks into future threats when developing their products. This focus

enables them to understand the problems in the market and even come up with products that will

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

solve not both short-term issues as well as long-term ones. A slowdown in the economy affects

Honda's demand elasticity (Hursh & Roma, 2013).

Conclusion

Honda is a company with high innovation, and its brand equity is substantial. It also

manufactures different products. The cost structure is too high, and this means that some of the

company's products will be bought by a particular group of people only. Most customers want

fuel-efficient vehicles, and Honda's R&D is strong enough to meet their customers' needs.

Honda Motor Company Production Outline

Motor Cycles

The Honda motorcycles commuter models are accepted and appreciated globally. From

leisure to sports models, Honda produces a variety of motorcycles that provide satisfaction,

pleasure as well as convenience to their worldwide customers when riding. The launching of the

super cub commuter model motorcycle which turned out to be the highly loved model in October

2017, made the product achieve 100 million units of accumulated manufacturing. The company

has continued to release some unique motorcycle models. Honda is currently the leader in the

motorcycle market (Yamasaki, & Miyamaru,1996).

Automobiles

Honda currently boasts of a wide variety of the best selling cars globally. Now the Civic

and the companies HR-V, the Ridgeline truck, the Acura models are the best selling makes in

North America, Japan, and China as they are considered to be a high-class car (Womack, &

Jones, 2002).

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

Technological/Electrical products.

Honda is currently delivering to its customers in over one hundred fifty countries

worldwide and they now manufacture over six million powered products every year, starting

from its multi-purpose engines, the products they power, and this includes, generators, tillers

snowblowers, pumps, lawn mowers, pumps as well as outboard motors. The Company also

produces electrified products and which can be useful in several life aspects thus giving new

value and demand to their products. Honda also builds the walking aid device which assists in

the walking training. The robotic research team developed this walking aid at Honda. The Honda

Company has continued to provide to its worldwide customer's powered products that are user-

friendly and familiar with the market problems thus ensuring they pursue their maximization of

possibilities of their electrification and engine technologies (Prahalad, & Hamel, 2000).

The Honda Jets

The Honda Company introduced its Honda Jet to the world towards the end of 2015, and

this provided a new form of mobility. The company prides itself with its unique technologies

such as its popular over the wing mounted engines, making the users achieve a high-end mobility

feeling in the skies. By March 2018 the Honda Jet had begun working on orders from India and

China (Gotoh et al., 1993).

Honda Motor Company Production costs

FC, VC and ATC Curve movements

Fixed costs (FC) are the costs that won't change despite the change in the number of

vehicles produced. Variable Costs (VC) vary proportionally to the increase or decrease in units

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

produced. The fixed and variable costs are essential terms in managerial accounting and widely

used in analyzing financial statements.

The average total cost (ATC) curve movement is usually an influence of two factors namely

technology and the prices for the factors of production. A change in technology which increases

the company's productivity causes the product curve to shift upward, and the cost curve moves

downwards. Where there is a technology change that results in usage of more capital by a

company, the average fixed cost is made to shift upwards, while on increased levels of output the

average total cost reduces. On the other hand, when the price for a factor of production increases,

values increase thus shifting the cost curve upwards. However, when fixed costs rise, there is no

effect to the variable and marginal cost curves. Similarly, when variable cost increases the fixed

costs curves does not move. It's the total cost curves that get concerned when a price of any

factor of production changes (Lechmann, & Niemeier, 2013).

Honda Motor Company Market Structure

Honda Company is a Japanese corporation and the eighth largest automobile

manufacturing company globally. Being the second largest car manufacturing company in Japan.

Honda Company’s market structure is oligopoly in that only few sellers are offering similar

products. In Japan, Toyota, Honda, Nissan, and Suzuki are the few sellers in the market. This

scenario makes it hard for other sellers to get into such market since the few who are there

already have dominated the industry thus forming the oligopoly. Oligopoly is an imperfect

competition as it happens in places which have fewer sellers or markets that are not yet

standardized. Because a small number of firms dominate the Japanese market, the competition in

such industry is limited thus making these firms to either compete with one another or join forces

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

and work together through collaboration. If this happens, then they can use their joint powers to

push up the prices which in turn will lead to more profits (Singh et al. 2008).

Target Market

Honda Company uses a mixture of psychographic, demographic and geographic variables

for its market segmentation to understand its diverse markets while satisfying the differing needs

of its targeted customers. The Honda Company uses the targeting strategy to select its specific

population where specific products and services get directed. The company has strategically

positioned itself as a company which is value based, with the objective of enriching people’s

lives worldwide while giving them the powers for enjoying life, hence its mission statement

(Abernathy & Ronan, 1980).

Market Challenges

The Honda Motor Company has been facing challenges such as heightened competition

with giants who can provide similar and alternative products to theirs, inability to balance

demands and technology whereby they have been concentrating more on quantities rather than

quality. Globalization and market penetration has also been a challenge for Honda Motor

Company. The problem is as a result of some competing brands are established in specific

markets. The evolution and industry transformation has also been a challenge for the company as

they need to be quick and fast in adopting the changing market needs. Another problem has been

the exchange rate whereby at times the yen loses value and becomes weak against the dollar.

This challenge has led to profit reduction for the company (Shiau et al., 2009).

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

How to increase revenue in the short/long run

The Honda Motor Company can maximize the high demand for luxury cars in North

America and Japan. The company should also increase its Motorcycle market penetration in

countries like Indonesia, China, and India. The company can also increase its market share by

investing in innovating motor vehicles that are environmentally friendly, fuel efficient and low

cost for its market segment. This focus on green energy technology can increase the demand for

Honda automobiles in other countries other than the US. Once expanded to other countries, these

green energy technology vehicles could be the key driver for Honda Motors growth. They should

also introduce new luxury entry-level cars in North America and Japan as this can drive the

company growth (Romejko & Nakano, 2017).

Changes in the objectives of Honda Motor Company

Profits

When looking at the profitability consultancy and market analysis firm ASE, 2015’s, we

note that manufacturers imposed essential targets to dealers in 2016 for purposes of success.

These targets are the reason that despite recording high sale volumes, the profits were much

lower than they were the previous year. In this case, the company concentrated in sales

maximization and not profits. The same scenario replicated itself when by June 2017, profits had

increased despite the number of registered units having gone down. This scenario indicates that

the company concentrated on profit maximization and not sales (Maruyama & Odagiri, 2002).

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

Sales maximization

Honda has safety research that ensures maximum protection of the user in case of

accidents. For instance, frontal collisions which are common with motorcycles is a matter of

concern for the riders. Many injuries occur from the impact with road surfaces or motor vehicles.

Honda noted this challenge and reduced the severity of injuries by absorbing the energy of an

impact. On the other hand, Honda also decreased the forward velocity of the rider and developed

an airbag. The airbags inflate when there is an impact, and as a result, the kinetic energy of the

rider reduces. This inflation minimizes the fatality of any injuries. For this reason, Honda has

improved the sales of its motorcycle as it has created a product that acknowledges the challenges

faced by riders and offers a solution to the problem. Honda's active research and development

team has ensured that they are at per with the changes in the modern world. This research focus

enables them to come up with vehicles that suit the client needs. For instance, fuel efficiency is

vital for any motor vehicle. Honda has scaled up its sales by ensuring most if not all their cars are

fuel efficient. The quality of their products also provides maximum sales (Miyazaki, 2017).

Increasing market share

Most automakers pursue the market share by coming up with a target group and creating

suitable models for those groups. They then introduce models that suit the high-end clients, and

in the long run, they remain significant in the market. However, Honda focuses on enhancing the

quality of its products. It also uses a common platform which reduces the manufacturing

expenses of its high-end models and increases profits (Killing, 2013).

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

Building a good business reputation

Honda gets its reputation from the quality products they bring to the market. It has set

policies as well as programs that enable the creation of new models. They have also set up new

Research and development centers and manufacturing plants.

Financial stability and liquidity

Honda has liquidity and funding strategies that ensure financial security. The liquidity

strategy enhances cost-effective expansion and diversification of capital sources by funding

current as well as future obligations. The funding strategy takes into account various factors such

as maturity profiles, interest rates, capital market and economic conditions. The policy also

diversifies investors and incorporates multiple funding sources such as bank loans, commercial

paper, related party debts, asset-backed securities and medium-term notes.

Maintenance of good labor relations

Honda has three principles that are vital for the management of its personnel; initiative,

trust, and equality. Honda respects all effort from each. It also respects creative thinking and

judgment made by all staff. Honda also gives equal opportunities to all. The possibilities are

regardless of gender, race, religion, age, social status, national origin or economic position.

Honda also ensures mutual trust and respect of each's efforts.

Job satisfaction

Honda's operating policy plays a crucial role in enhancing job satisfaction. The company

ensures that its employees enjoy their work by creating a work environment that enhances the

development of fresh ideas and harmonious workflow.

DEMAND, SUPPLY, AND ELASTICITY OF HONDA MOTOR COMPANY

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