Download - Economic Analysis of the Honda Accord
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 company is “built on dreams.” Its founder 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.
YearHonda Accord
U.S. SalesBase MSRP
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.
200,000 250,000 300,000 350,000 400,000$0
$5,000
$10,000
$15,000
$20,000
$25,000
f(x) = − 4.9481747537E-13 x³ + 2.69244251247E-07 x² − 0.050178541030016 x + 24778.2605286374R² = 0.701882667033808
Series2Polynomial (Series2)
We can the compare the data with Nissan Altima sales volumes in the past ten
years as well.
YearNissan Altima
U.S. SalesBase MSRP
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:
200,000 220,000 240,000 260,000 280,000 300,000$0
$5,000
$10,000
$15,000
$20,000
$25,000
f(x) = − 2.89364452833E-12 x³ + 1.959666848328E-06 x² − 0.425494335850096 x + 47576.6117420273R² = 0.0661388057411204
Series2Polynomial (Series2)
Price Elasticity
Given the formula for calculating price elasticity,
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)] / [($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
[(Q2-Q1) × (P2+P1)][(P2-P1) × (Q2 + Q1)]
[(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
Accord
Change in Price of
Altima
Cross-Price
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
Year Output VC FC TC AFC AVC ATC MC
2011
235,625 16,683,000 5,883,00022,566,00
024.97 70.80 95.77
2010
282,530 14,312,000 4,959,00019,271,00
017.55 50.66 68.21
-0.014235205
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.
Numbers in Thousands
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. 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-200-
million-upgrade-200-new-jobs-in/