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Analysis of Demand and Supply for Ford SUVs and Trucks

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This paper will discuss the analysis of Demand and Supply for Ford’s SUVs and trucks. Particularly the larger SUVs and Trucks. What is demand and supply analysis? It “is the study of how buyers and sellers interact to determine transaction prices and quantities.” (Demand and Supply Analysis: Introduction, 2011). It might be hard to believe that the big SUVs and trucks sells are on the rise while all sedans sales are plummeting in ever category. Half a decade ago SUVs and trucks sells were rock bottom but with the current economy, low gas prices, low interest rates, and the average income is on the rise, people are opting for the larger vehicles. Ford is one manufacture that is going to take advantage of the new demand shift. Ford has opted out of making any more sedans and to only to make SUVs and trucks. Ford will keep two sedans which is the Ford Focus and the Ford Mustang their best sellers. Ford plans to introduce new SUVs and Trucks to cover more of the market segments, because not ever consumer can afford Fords top tier line that cost upwards of seventy to eighty thousand dollars.

The Analysis of Demand and Supply.

Less than five years ago car manufacturers were on a race to improve fuel economy. This was mostly due to the high gas prices. From around 2011 until late 2014 going into 2015 gas prices averaged over $3.50 a gallon and high average just over $4.00 dollars a gallon.

The above chart is from (Gas Price Charts, 2018). According to data from the U.S. Department of Transportation, the average American driver puts in 13,474 miles behind the wheel each year. So, if U.S. consumer was to by a large SUV that got a combine average of 18mpg and at $4 dollars a gallon it would have cost the consumer $2,994 dollars. However, if the consumer was to buy a car that got closer to 40mpgs it would have cost the consumer $1,347.4 dollars. This would have saved the consumer on average $137 dollars a month just in gas not to mention that the smaller cars cost less. Gas was a significant factor but there were other factors such as economic confidence was down, the average American’s salary was stagnate and even declining. During the time frame 2010 to 2016 consumers were spending less.

The economic environment has changed, and the economy has strengthened over the last two years. Gas prices are lower with the current national average of $2.84. At the current gas price and with the larger SUVs and Trucks peaking around 20mpgs it would currently cost the consumer $1,913 dollars in gas, this is a thousand dollars a year savings. Other factors driving consumers spending more on cars are Americans have more economic confidence and American wages are on the rise. According to USA Today “U.S. workers’ wages and benefits grew 2.6% last year [2017] the fastest 12-month pace since the spring of 2015.” (Wages rise at 2.6% in 2017, 2017). This means that U.S consumers have a little more money in their pocket and they don’t want the same cars any longer and are willing to spend more to get more.

Americans have always been drawn towards larger vehicles more than other nations. Therefore, Ford has made the change to focus more on their SUV line and Truck line. Only two cars survived the chopping block. One thing that is evident with the current new demand is the price. In 2013 the Ford Expedition top out at $51,355 dollars in the top trim level of the King Ranch.

Now in 2018 Ford has introduced a remodeled Ford Expedition and the top tier base price is $76,175 dollars.

These prices were gathered from What caused this massive jump in price in just 5 years. To start out the demand was down because of the recent high gas prices. With the environmental factor such as gas price this will reduce the demand for larger vehicle when there is a alternative vehicle that got better gas mileage and cost tremendously less. As the gas went down and the consumer income went up the demand for these SUVs went up, but the supply was low. Fords parent company Lincoln was selling their high-end Lincoln Navigator but Ford was having a hard time keeping up the demand. In January of 2018 Lincoln sold 1,300 Navigators this number was up 97.5% from January in 2017. Not only was Lincolns sales up but of those 1,300 Navigators sold 84% of them were Lincolns two highest trim level which brought a price of over $90,000 dollars.

While everyone might not be able to spend upwards of $80,000 to $90,000 dollars Ford is introducing new models that are smaller but look like an SUV. This move is to capitalize on the current trend that people are moving away form sedans and that the current technology is allowing some of the smaller crossover SUVs to get upwards of the 30mpg range. The ability to get 30mpgs in a SUV will help Ford survive if the gas price was to go up or if the economy was to take a down turn. In the end if the economy is right the U.S. consumer will spend more on their vehicle but if gas goes up and the economy tanks we could see prices fall for the large SUVs and Trucks.

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