Chapter 2-Media Article

"Auto Sales Slowing But Vehicle Production Has Momentum,"
MoneySense News-Wednesday, October 5, 2005

Due to the high fuel costs and sagging consumer confidence, vehicle sales have probably past their peak for the current business cycle. However, the momentum of car production will still be maintained for at least a few months because of low inventories and the start of the new model year. Also, North American vehicle sales in July were the second highest on record during the months after the terrorist attacks of September 2001. But sales started to decrease in August then sales in September dramatically fell as employee discounts for all promotions expired and fuel prices spiked. Most importantly, the major factor affecting auto sales to decline is the high costs for gasoline, natural gas, home heating oil, and electricity. This has the biggest impact on fuel-thirsty sport utility vehicles. Thus September had a really weak sale, with a 2.4% decline from the previous year. However, Carlos Gomes, Scotiabank's auto industry specialist predicts that despite the decrease in sales, auto factories will still remain busy in the near future because automakers are boosting production of their new models for the 2006 model year. This will most likely last until the spring of 2006 and after the first quarter of the year, the production will probably start to decline again.

Relationship to Ch.2-Supply vs Demand and Elasticity Goods
Vehicle sales have been declining in the recent years. The main cause behind the decline of vehicle sales is most likely to be the dramatic increase of gas prices. Higher fuel prices would probably cause an increase in the price of vehicle productions. For example, if fuel prices were higher, the cost of transporting vehicle components from one place to another would naturally be higher. As a result, the increase in production cost will cause the supply curve to shift. This means the supply would increase because the supplier are willing to supply more to the markets because the same number of vehicles will be sold to the market at a higher price. Consequently, the demand curve for vehicles will shift because the gas prices caused the price of vehicles to increase, thus the demand will decrease if supply increases. This means that at a lower price, more people will purchase vehicles but the supply of vehicles will be less and vice versa. Furthermore, because there are alternatives and substitues for vehicles, such as taking the bus, the purchase of vehicles is not necessarily as it is an elastic good. In conclusion, if the price of vehicles are lower, there will be more demand and thus more income. However, even though the supply of vehicles will increase if prices increase, the demand will decrease, therefore there will be less income. In additon, vehicle sale companies would lose more money if they take a longer period of time to sell a model of vehicle, as their value decreases when a new model comes out. As a result, I think even though vehicles sales are generally declining, there is still a momentum in vehicle production because they want to prevent themselves from losing more money by selling newer and better models of vehicles. Will gas prices continue to increase? And if so, what other impacts will it have on the demand and supply of goods such as vehicles? Would this increase be of a benefit for certain groups of people in the society? Also, are hybrid cars the solution to the increase of fuel prices? I think those are some questions that we should really think about regarding the impact that the increase of gasoline/fuel prices has on our society.