Economics of the industry: Feb. 7, 2011

How do companies make their money?

In the automobile industry, there are several ways that cars' companies can generate profits. However, I found three different ways that auto companies depend on to make money. They are increase in production, international trade, and industrial sites investments.

First, production which is the most important factor for auto companies to earn profits. If production increases, auto companies will earn more money. To increase their production in the market, they attempt to rise up the number of cars to their dealers. According to the article "Ford to Boost Car Output in U.S. Market," Ford wants to increase its supply to dealers by 13% this quarter. Ford might also increase the cars' production in the coming year. Furthermore, GM claimed that 90% of its dealers have announced profits last year. Also, GM's profits increased to 23% in January, 2011 comparing with January, 2010.

Second, some companies tend to have different ways to generate money like trading globally. For example, one of Chrysler's goals is to increase the international trade of its cars. In addition, there is a plan to let Chrysler's cars consume a 40-mile of a gallon in one hour which makes their cars more in demand locally and internationally. Chrysler believes that by reaching these two steps, they would increase the profits 5% more to reach 35% of its final ownership

Finally, several auto companies invest in their own sites of industry. For instance, Renault is planning to invest $7.9 billion in their industrial places from 2010 to 2013. It will invest 40% of that amount in France because it has the highest number of market share of Renault between European countries. Renault also wants to invest in hybrid cars and to be one of the biggest companies that produce hybrid cars in the next decades. Because it thinks that hybrid cars would be the future market.

In my own experience, I believe that there are several more methods to make money for auto companies. Additional features is one of these methods. Cars companies, such as BMW, Audi, and others offer heated seats, navigation, or sport packages which increase the price of the vehicle. Those companies benefit from these features by earning more money because they make the pieces by themselves and in their own factories. The second point is the service maintenance that auto companies offer, such as the usual service and advanced servicing for major issues. These companies know that their customers need service to maintain their cars, so these companies charge for service programs after certain time or creation milage. Again, the costs for services are very small comparing with their profits.

References

http://online.wsj.com/article/SB10001424052748703439504576115732631840502.html

http://online.wsj.com/article/SB10001424052748703445904576118072489186028.html?mod=WSJ_auto_MiddleSecondHighlights

http://online.wsj.com/article/SB10001424052748704858404576128603352890980.html?mod=WSJ_auto_IndustryCollection

http://online.wsj.com/article/SB10001424052748703960804576119970736042258.html?mod=WSJ_auto_IndustryCollection

http://online.wsj.com/article/SB10001424052748704843304576126491545116416.html?mod=WSJ_auto_IndustryCollection