this is economic case study following with 4 questions and each has to be 150 words at least including diagram for some questions,,so total 600 words
According to data from British Car Auctions (BCA) market trends point to a growing used car market as drivers cut back on their purchases of new cars. Used car sale volumes rose to [url removed, login to view] in 2010 – up from [url removed, login to view] in 2009 – and increased to a record breaking £35billion in sales as the used car market continues to lead the recovery in the motor industry.
An additional 270,000 used cars were sold compared to 2009, generating an extra £800 million in value. Stronger sales of cars in the 6-8 year age group in 2010 helped the used car market volumes rise by 4.3% as sales of younger used cars stalled. The average used car selling price fell from £5,422 in 2009 to £5,332 in 2010.
The BCA have warned that there are likely to be supply problems for used cars in the future due to the lack of new cars coming on to the market which will mean second-hand motors could be more expensive in the future. The BCA believe that a lack of good quality 2-5 year-old used cars is a significant concern. Of the second-hand motors that are becoming available, the BCA has seen an influx of increasingly older cars with higher mileages coming onto the market. This will create more competition between second hand car dealers as they fight to obtain good quality used cars, which is likely to affect their profits.
According to the statistics, the average age of cars in the UK rose to 7.25 years in 2010, which is a 14 year high. This is a trend that the BCA believe will continue for ‘several years to come.’ The average mileage of used cars has also increased. The average number of miles on the clock for a used motor going on sale has now reached 59,000 – a market highpoint according to the survey.
Since the 2008 economic crash, around 500,000 fewer new cars are being sold every year and industry forecasts indicate that this pattern is unlikely to change any time before 2012. As the BCA report points out, you cannot remove over two million new car sales from the car market without creating problems in the used car market.
In further research on motoring habits by the BCA, it found that price remains the most critical factor when it comes to purchasing a used car. After make and model, low mileage is the third most important factor for used car buyers. Finding decent used cars with a low mileage could be a problem in the future, as the number of used vehicles with a higher mileage flood the market. Tony Gannon, communication director at BCA, said that low mileage is likely to remain a highly desirable factor for used car buyers but will become increasingly difficult to get hold of.’
The BCA report also shows that the economic downturn has had a marked impact on the pattern of UK car ownership. It has become more difficult for families to insure and fill up the tanks of two cars. Overall 5% fewer families have at least one car compared to 2010, with the biggest drop being seen in the number of two-car households. In the future households will be looking for smaller, more practical and economical vehicles as budgets remain stretched. As petrol prices continue to increase the cost of filling a tank rises. It is now more than £10 more expensive than a year ago.
According to the AA fuel report, the average cost of petrol a year ago was [url removed, login to view] per litre and diesel 117.54p. With prices now 20p higher than that, filling a typical 50-litre petrol tank now costs £10.27 more. Car insurance premiums have risen by 12% which equates to a £92 jump in insurance costs which explains why car-owners are looking for more economical vehicles that are cheaper to insure.
Tony Gannon added: ‘The next 12-18 months are going to be a very challenging period for the UK motor industry. The potential shortage in supply of younger used cars over the next few years may create upward pressure on prices, while economic pressures may lead to reduced demand which will push prices downwards.
In total there are 40 marks available for this question. The marks for each question are given at the end. It is important to answer as fully as possible. Marks will also be awarded for clarity and for the use of correctly labelled diagrams where appropriate.
(1) Using demand and supply diagrams show what has been happening recently in the new and second hand car markets. Would you expect the price elasticity of demand in these two markets to be different? Explain your reasoning. (12 marks)
(2) Explain how the BCA research on motoring habits might be useful to car sellers.
(3) Suppose that you are working as the CEO of a car manufacturing company. Explain which pricing strategies you could use to achieve more profit in the present economic conditions. (8 marks)
(4) What type of relationship exists between fuel prices and vehicle demand and between insurance costs and vehicle demand? (4