Aaron Hussain
Abstract
Honda Motor Company (HMC) is one of the world’s leading car companies. In
this paper the financial and economic analysis of the company will be discussed and compared to one of its main competitors, Nissan. This discussion includes an analysis of the company’s demand function and revenue function obtained by
using company information; regression analysis; discussion of the cost structure, total cost, average cost, and marginal cost functions; economic profit, output, and product prices; and the market structure of the company.
Introduction
Honda states that their co mpany is “built on dreams.” Its founder Socichior Socichior Honda bases his philosophy on moving forward and being a visionary company that is dedicated to “human mobility and benefit [to] society. The corporate
website reads: Our success in the global marketplace is the result of our continued investment in America's future. We thank our customers for the support and trust they've shown us. We look forward to challenging ourselves to create new products and services that bring value to our customers and society during the next 50 years. One of Honda’s main competitors is Nissan, another Japanese car company. We will compare the demand between the two company’s family sedan sales in
the US.
Demand Analysis The demand of one Honda’s most popular vehicles, its family sedan, the Honda
Accord is given below according to US sales volume. Honda Accord Year
Base MSRP U.S. Sales
2002
398,980
$15,500
2003
397,750
$15,800
2004
386,770
$15,900
2005
369,293
$16,295
2006
354,441
$18,225
2007
392,231
$18,625
2008
372,789
$20,360
2009
287,492
$20,905
2010
282,530
$21,055
2011
235,625
$21,380
In graph form, we see the downward- sloping curve of the Honda Accord’s demand according to price in the past decade.
$25,000 $20,000 $15,000 Series1 Poly. (Series1)
$10,000 $5,000 $0 200,000
y = -5E-13x3 + 3E-07x2 - 0.0502x + 24778 R² = 0.7019 250,000
300,000
350,000
400,000
We can the compare the data with Nissan Altima sales volumes in the past ten years as well. Nissan Altima Year
Base MSRP U.S. Sales
2002
201,822
$16,649
2003
201,240
$16,749
2004
235,889
$16,850
2005
255,371
$17,450
2006
232,457
$17,750
2007
284,762
$17,950
2008
269,668
$18,620
2009
203,568
$19,900
2010
229,263
$19,900
2011
268,981
$20,270
Nissan Altima demand in relation to base MSRP given in graph form: $25,000 $20,000 $15,000 Series1 Poly. (Series1)
$10,000 $5,000 $0 200,000
y = -3E-12x3 + 2E-06x2 - 0.4255x + 47577 R² = 0.0661 220,000
240,000
260,000
280,000
300,000
Price Elasticity
Given the formula for calculating price elasticity, [(Q2-Q1) × (P2+P1)] [(P2-P1) × (Q2 + Q1)]
ED= we can calculate the price elasticity for each year starting from the second year of the data, 2003. Let us start off by looking at Honda. Honda Accord 2003
[(397,750-398,980)*($15,800+$15,500)] [(397,750-398,980)*($15,800+$15,500)] / [($15,800$15,500)*(397,750+398,980)] = -.1584 Inelastic Honda Accord 2004
[(386,770-397,750)*( $15,900+$15,800)] / [( $15,900-$15,800)*( 386,770+397,750) = -4.4366 Elastic Honda Accord 2005
[(369,293-386,770)*( $16,295+$15,900)] / [( $16,295-$15,900)*( 369,293+386,770)] = -.0231 Inelastic Honda Accord 2006
[(354,441-369,293)*( $18,225+$16,295)] / [( 354,441-369,293)*( $18,225+$16,295)] = 1 Unitary elastic Honda Accord 2007
[(392,231-354,441)*( $18,625+$18,225)] / [( $18,625-$18,225)*( 392,231 +354,441)] = 4.6626 Elastic Honda Accord 2008
[(372,789-392,231)*( $20,360+$18,625)] / [( $20,360-$18,625)*( 372,789 +392,231) = -.5710 Inelastic Honda Accord 2009
[(287,492-372,789)*( $20,905+
$20,360)] / [( $20,905-$20,360)*( 287,492+
372,789)= -9.7812 Inelastic Honda Accord 2010
[(282,530-287,492)*( $21,055+$20,905)] / [( $21,055-$20,905)*( 282,530+ 287,492)]= -2.4350 Elastic Honda Accord 2011
[(235,625-282,530)*( $21,380 + $21,055)] / [($21,380-$21,055)*( 235,625+282,530) = -11.8195 Elastic Let us compare the elasticity of the Accord to Nissan’s family sedan, using sales
figures for the past decade. Nissan Altima 2003
[(201,240-201,822)*( $16,749+$16,649)] / [( $16,749-$16,649)*(
201,240+201,822)] = -.4822 Inelastic Nissan Altima 2004
[(235,889-201,240)*( $16,850+$16,749)] / [($16,850-$16,749)*( 235,889+ 201,240) = 26.3685 Elastic Nissan Altima 2005
[(255,371-235,889)*( $17,450+$16,850)] / [($17,450-$16,850)*( 255,371 + 235,889)] = 2.2670 Elastic Nissan Altima 2006
[(232,457-255,371)*( $17,750 +$17,450)] / [($17,750-$17,450)*( 232,457+255,371)] = -5.5113 Elastic Nissan Altima 2007
[(284,762-232,457)*( $17,950+$17,750)] / [($17,950-$17,750)*( 284,762+232,457)] = 18.0512 Elastic Nissan Altima 2008
[(269,668-284,762)*( $18,620+$17,950)] / [($18,620-$17,950)*( 269,668+284,762)] = -1.4860 Elastic Nissan Altima 2009
[(203,568-269,668)*( $19,900+$18,620)] / [($19,900-$18,620)*( 203,568+269,668)] = -4.2033 Elastic Nissan Altima 2010
[(229,263-203,568)*( $19,900+$19,900)] / [($19,900-$19,900)*( 229,263+203,568)] = undefined Nissan Altima 2011
[(268,981-229,263)*( $20,270+ $19,900)] / [($20,270-$19,900)*( 268,981+229,263)] = 8.6545 Elastic
Cross Elasticity
We will calculate the cross price elasticity of the Honda Accord to the Nissan Altima by using the following formula: Percentage change in quantity demanded of product-x divided by percentage change in price of product-y Year
Change in Demand of
Change in Price of
Cross-Price
Accord
Altima
Elasticity
2003
-0.31%
0.60%
-0.51
2004
-2.76%
0.60%
-4.58
2005
-4.52%
3.56%
-1.27
2006
-4.02%
1.72%
-2.34
2007
10.66%
1.13%
9.46
2008
-4.96%
3.73%
-1.33
2009
-22.88%
6.87%
-3.33
2010
-1.73%
0.00%
undefined
2011
-16.60%
1.86%
-8.93
Regression Analysis
Cost Analysis
For simplification purposes, we will consider the Research and Development Expenses of Honda as fixed costs and Selling General and Administrative expenses as variable costs. These costs are related to all the products that the company sells, not strictly the Honda Accord. For simplification purposes, and for this case study, we will assume that the Accord only product that Honda sells, in order to demonstrate the cost structure of the company.
Year
Output
VC
FC
TC
AFC
AVC
ATC
MC
2011 235,625 16,683,000 5,883,000 22,566,000 24.97 70.80 95.77 2010 282,530 14,312,000 4,959,000 19,271,000 17.55 50.66 68.21 Numbers in Thousands
0.014235205
Profit Analysis
Year
Revenue
Cost
Economic Profit
2012
96,581,000
21,838,000
74,743,000
2011
107,829,000
22,566,000
85,263,000
2010
91,815,000
19,271,000
72,544,000
Numbers in Thousands Profit rose in 2011 but has decreased this past year.
Conclusion
The structure of the auto industry is an oligopoly. oligopoly. Economics Online describes an oligopoly as An oligopoly is a market structure in which a few firms dominate. When a market is shared between a few firms, it is said to be highly concentrated. Although only a few firms dominate, it is possible that many small firms may also operate in the market. For example, major airlines like British Airways (BA) and Air France operate their routes with only a few close competitors, but there are also many small airlines catering for the holidaymaker or offering specialist services.
Bibliography
"2011 Honda Accord Specs and Features." MSN Autos. N.p., n.d. Web. 06 Dec. 2012. "2011 Nissan Altima Specs and Features." MSN Autos. N.p., n.d. Web. 06 Dec. 2012. "^GSPC Historical Prices } S&P 500." Yahoo Finance. N.p., n.d. Web. "HMC Historical Prices - Yahoo! Finance." Yahoo! Finance. N.p., n.d. Web. 06 Dec. 2012. "HMC Income Statement." Yahoo Finance. N.p., n.d. Web. "Honda Accord Sales Figures." Good Car Bad Car . N.p., n.d. Web. "Nissan Altima Sales Figures." Good Car Bad Car . N.p., n.d. Web. 06 Dec. 2012. "Oligopoly." Economics Online. N.p., n.d. Web. 06 Dec. 2012.
Attachments
Source: http://www.autoblog.com/2012/11/02/honda-marks-30-years-with-200million-upgrade-200-new-jobs-in/
