Which Product Was Not Related to the Automobile Industry?
It is not possible to answer the question, “Which product was not related to the automobile industry” because there are literally thousands of products that are unrelated. Moreover, any question that is nebulous in nature tends to attract silly answers. To avoid this situation, let us look at ER diagrams for different automotive industries. In the following paragraphs, we will consider three different examples:
Raw materials
Recently, the Bank of America released a report analyzing recent US inflation and how it could affect the automobile industry. One of the implications of rising raw material costs is a tightening of the spread between rising raw material prices and stagnant average transaction prices. This will likely increase the pressure on suppliers. It is important to understand the importance of raw materials to the automobile industry and how they will affect the cost of manufacturing electric vehicles.
The auto industry uses many raw materials to manufacture its products, including aluminum, glass, and iron ore. Plastics, rubber, and special fibers are made from petroleum products. Most of these materials are consumed by the automaker, while the auto parts industry uses them as raw materials for manufacturing. Until recently, raw materials were not related to the automobile industry, but now they are one of the largest consumers of raw materials worldwide.
Suppliers of automotive components faced several operational and logistical challenges. There was a blockage of the Suez Canal, a shortage of trucks, and containers, and massive increases in shipping costs. Containers were shipped from Asia to the United States for up to 500% more than the year before. In addition, labor costs were rising dramatically. These challenges made it difficult for automotive suppliers to meet demand. Ultimately, the industry faced a period of greater supply chain instability. Which Product Was Not Related to the Automobile Industry?
Today, the automotive industry uses plastics to manufacture various components of a car. These plastic components are in line with modern, environment-friendly production methods. Nevertheless, there are still some negative impacts associated with these materials. The automobile industry has a significant impact on the environment and is one of the biggest consumers of petroleum-based products. Nonetheless, these negative impacts are outweighed by the positive effects of petroleum and plastic.
Cost of production
The Cost of Production of a Product (COOP) includes labor, raw materials, and manufacturing overhead costs. Indirect labor costs include people who do not create a finished product but who are necessary for the smooth operation of a production line. Such people include security guards, supervisors, and quality assurance teams. The costs of indirect labor include salaries, wages, and benefits. Costs not directly related to product production, such as selling, general, and administrative (SG&A) expenses, are not considered product costs. These expenses are generally expensed to the income statement and are not capitalized into the inventory value.
Changes in weather patterns also affect the cost of producing a product. For example, most of China’s corn, soybeans, and wheat are grown on the Manchurian Plain in Northeastern China. Drought reduces production and, in turn, lowers prices. Meanwhile, good weather shifts the supply curve to the right and raises prices. This situation is similar to that of the automobile industry, but the cost of production is different.
Automobile producers often produce many models of the same product. They compete with other manufacturers to attract and keep customers. A company may reduce the price of its Thunderbird model, but the demand curve for other Ford vehicles shifts to the left, making Thunderbird more competitive with other Ford models. These interactions make pricing decisions in the automobile industry more complex than simply lowering prices. However, there is some good news for automobile producers.
Labor is another major cost driver in the automobile industry. Typically, a car takes approximately 17 to 18 hours to assemble. However, a special car may take months to be assembled. Another significant factor is R&D, which takes up about 10% of the total cost. In addition, other costs, such as administration, comprise the remaining 16%. In addition to labor and raw materials, other costs such as depreciation, shipping, and markups, all contribute to the overall production cost of a product.
While the cost of production is the most expensive part of a car, the costs associated with manufacturing it are also the highest. Research and development account for around 16% of the total manufacturing cost. Sales tax is also a component of the cost of production and determines the price of a car in the market. The remaining costs include overhead, depreciation, and dealership markups.
Competitive environment
The automotive industry has long been competitive, but with the advent of AI, competition has become even more volatile. Today, most companies must create fresh competitive advantages while also eliminating others’ advantages to remain competitive. In addition, innovation has permeated the entire value chain. And because of this, companies must rapidly migrate from one competitive position to another. Unfortunately, this process is highly chaotic and unstable, and senior executives need new tools to analyze these changing competitive situations.
