Introduction
Established by Soichiro Honda in 1948, Honda Motor Company, Limited manufactures automobiles,
motorcycles, trucks, scooters, robots, jets and jet engines, ATV, water craft,
electrical generators, marine engines, lawn and garden equipment, and
aeronautical and other mobile technologies (Nazario, 2012). The company’s
motto, “The Power of Dreams” is a way of thinking that guides the employees and
inspires them to move forward to create innovative products that enhance
mobility and benefit society (Honda, n/a). It is the sixth largest automobile
manufacturer in the world and
the world’s largest motorcycle manufacturer and engine-maker in the world (TrueCar,
n/a). In 1949, Honda Motor Company produced its first motorcycle and in 1963,
the automobile was first produced. Honda Motor Company became the largest
manufacturer in motorcycles in 1964.
Honda T360, the first automobile produced
In 1986, Acura brand was
introduced to the American market by Honda Motor Company to gain ground in the
luxury vehicle market, as the company wanted to expand its production line and
operations, and exports to countries around the world.
Example of an Acura automobile (Acura NSX)
In the recent years, Honda
Motor Company has created joint ventures around the world, such as Honda Siel Cars India Ltd, Hero Honda Motorcycles India
Ltd, Honda Atlas Cars Pakistan, and many more. The company
consists of 190,338 employees working for it worldwide in 2013 (Statista,
2013), and it owns 50 manufacturing facilities worldwide. Its main headquarters is located in Tokyo, Japan,
and the president of this industry is Takanobu Ito.
Takanobu Ito, President of Honda Motor Company
Market Structures
Honda Motor Company is an
oligopoly because the industry is only competing with a few other dominant automotive
industries in Japan, such as Toyota, Nissan, Suzuki, Mazda, and Subaru. In
Malaysia, it is competing with the Malaysian and other international companies,
such as Proton, Perodua, Ford, Lexus, and Audi. The reason why Honda Motor
Company is an oligopoly is because the change of price in the market shares,
the results of advertising, and the outcomes of the problems solved in this
company will be reflected in the sales of the other companies. Also, the
barriers to entry is very high, as a lot of capital is needed if a person wants
to start up a business in this industry. It is also a price setter instead of a
price taker; therefore, the company is able to set the pricing of their
automobiles.
Net Sales for Honda Motor Limited
The graph above shows the net
sales of Honda Motor Company persisting and fluctuating through the years;
hence, showing the increasing and decreasing of demand of automobiles.
Year 2009 (Elasticity and Shift in Demand)
In the year 2009, the net
sales decreased from ¥12,002,834 million to ¥10,011,241 million. One of the
reasons is because raw material prices significantly increased worldwide. When
the raw material prices increased, the cost of producing an automobile
definitely increased; therefore, increasing the price of the automobiles. When
the price of the automobiles increased, consumers started being responsive to
the price as their income is stagnant, hence, making the elasticity of demand
elastic. When the price increased from P1 to P2, the quantity demanded
decreased from Q1 to Q2. Therefore, the total revenue decreased because the
price increased.
Elasticity of demand
Another reason the net sales
decreased is because of the increase of the price of petroleum, which is a
complementary good. When the price increased, people used less petrol and
stared taking the other means of transportation or carpooled; consequently, the
demand for buying new automobiles decreased. The demand curve shifted left to
D1; hence, the quantity demanded decreased, and assuming the supply curve did
not shift, the price of the automobiles decreased from the initial price to P1 so
that the equilibrium could be reached.
Decreasing of quantity demanded
Year 2010
The net sales again decreased
to ¥8,579,174 million in 2010. When the world went into an economic slump,
people started losing their jobs, hence, the unemployment rate was high. Consequently,
the purchasing power decreased, as people had less money to spend. This
resulted in the fall of demand, therefore, shifting the demand curve left as
the quantity demanded decreased.
Year 2011 (Shift in Demand and Supply)
In 2011, the net sales
increased to ¥8,936,867 million. This increased in sales was because the
Europe’s economic condition improved. Therefore, increasing the consumer’s
spending, which increased the purchasing power. When the quantity demanded
increased, the demand curve shifted right, and assuming the supply curve stayed
the same, the price increased from P to P1 to go back to its equilibrium state.
Increasing of quantity demanded
However, there were a few
natural disasters that happened during that year, which cause the suspension of
the operation. This also caused the sales to decrease after these incidents. Six
plants of production were suspended right after the 8.9 magnitude earthquake
and tsunami in Japan (Seeking Alpha, 2011). After the earthquake and tsunami,
there was a monsoon in Thailand, resulting in the shortage of parts for output (Muller,
2011). Consequently, the North American production was forced to cut by fifty
percent. These incidents shifted the supply curve left, as the quantity supplied
decreased from Q to Q1, and assuming the demand curve did not shift, the price
went up from the initial price to P1.
Decreasing of quantity supplied
Year 2012
The net sales declined 11.1%
from ¥8,936,867 million to ¥7,948,095 million in year 2012 due to the
earthquake in Japan and the flooding in Thailand. Likewise, the oil prices
rose, and Europe and United States were in a debt crisis. Therefore, people
became more sensitive to the change in the price of oil, hence, demanded less
for automobiles as the purchasing power decreased.
Year 2013
In year 2013, the net sales
increased to ¥9,877,947 million as the demand for automobiles increased. The
economic conditions in United States and Japan improved; therefore, decreasing
the unemployment rate, which increased the purchasing power. Moreover, a new
car model was introduced, resulting in a positive response. This situation
increased the quantity demanded for automobiles, shifting the demand curve
right.
Substitutes and Complements
Honda Motor Company has many
competitors internationally. Hence, when the price of an automobile increases,
consumers would search for a cheaper automobile from another industry as a
substitute. Furthermore, a consumer’s income would also make he or she
sensitive to the change of price; therefore, buying a cheaper car, for example,
Proton, as a substitute. Also, when the price of the complementary goods
increase, such as petroleum and car batteries increase, consumers tend to
decrease the purchasing power and take other means of transport for a period of
time. All of these will decrease the quantity demanded and shift the demand
curve left.
Economics of Scale
Economics of scale is the
falling long-run average cost when a good is produced at a larger scale. When
Honda Motor Company produces better technology and more automobiles; the cost
of production will decrease. This benefits this company as it will maximize profit
and minimize cost.
Expected Future
In the future years, Honda
Motor Company’s net sales are expected to decrease. One of the reasons is due
to the fact that the resources are depleting. This will result in an increase of cost for
production, which will increase the price of the automobiles, and an increase
in the price of the complementary goods. The increase of inflation due to
recession will also affect the net sales negatively. Moreover, the fierce
competition of other companies will also pull the net sales down. As all these
increases, the company will make less profit and consumers will find other
means of transportation instead, hence, the decline in demand and supply of this
company’s automobiles. Honda Motor Company could also be subjected to
investigations, proceedings, and suits under regulations of various
jurisdictions (Honda, 2013), and a negative outcome could adversely affect the company.
Therefore, it could make a huge economic loss instead of an economic profit.
Conclusion
Honda Motor Company, Limited
is an oligopoly that makes an economic profit in the long run, even though its
net sales has been declining these past recent years. Through the natural
disasters and economic crisis, this company has been recovering and persisting
through, as the net sales has been increasing (as seen in the net sales chart
above).
Reference List
Honda (n/a) About
Honda. Available from: http://corporate.honda.com/about/ [Accessed 7
January 2014].
Muller, J. (2011) Earthquake, Tsunami, Monsoon – What’s Next
for Honda? Locusts?. Available from: http://www.forbes.com/sites/joannmuller/2011/10/31/earthquake-tsunami-monsoon-whats-next-for-honda-locusts/
[Accessed 7 January 2014].
Nazario. (2012) The History of Honda Motor Company.
Available from: http://gearheads.org/history-of-honda-motor-company/ [Accessed
7 January 2014].
Seeking Alpha (2011) 5 Automakers Affected by the Japanese
Earthquake and Tsunami. Available from: http://seekingalpha.com/article/260124-5-automakers-affected-by-the-japanese-earthquake-and-tsunami
[Accessed 7 January 2014].
Statista (2013) Worldwide Number of Honda Employees from
2002 to 2013 . Available from: http://www.statista.com/statistics/267275/worldwide-number-of-honda-employees/
[Accessed 7 January 2014].
TrueCar (n/a) Honda Cars, Prices & Models. Available
from: http://www.truecar.com/prices-new/honda/ [Accessed 7 January 2014].
