Ford Future Market Conditions: The Term Paper

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Price elasticity of demand

Traditionally, large ticket items do not have a great deal of elasticity in terms of price, because they are viewed as necessary goods, although they are not as elastic as a supermarket item one can 'stock up' on in bulk when it goes on sale. Car demand can be somewhat elastic in the sense that people can elect not to buy a new car, purchase a used car, or lease a model until prices decline -- there are market substitutes that can be cheaper, if the car market prices goods too high, as Ford was pricing its vehicles too high, and producing too many high-cost vehicles. Also, the price of compatible goods like gas can impact the choice of vehicle consumers chose to purchase. The Toyota Prius' popularity grew with the price of gas.

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Competitors

Ford's North American operations lost $1.6 billion in 2006, and its share of the U.S. market sank to 17.4%, versus its 24.1% share in 2000 (Lassa, 2007). It has failed even with the Focus to challenge Toyota's dominant of the increasingly important mid-sized vehicle market, and Toyota's non-unionized labor force and less crippling pension and retirement plans for its employees may still prove difficult for Ford to overcome.

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Supply and demand analysis more sluggish U.S. economy, concerns about the Middle East and the future of oil, environmental concerns about global warming, and uncertainty about the future of the U.S. (as the 2008 Presidential campaign begins to heat up) will likely mean that consumers will be hesitant to buy new, big-ticket items in general, except for hybrids and vehicles that can save them money in the long run. Ford must make a move to meet this new demand for more fuel-efficient goods.

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Impact of government regulations

The Federal Reserve Bank's regulation of interest rates plays a key role in demand for cars. At present, interest rates are at record high, even though the Fed is likely to back off from increasing them again, as the economy appears to be slowing. Also, a greener Democratic administration might mean future limits on emissions standards, and increased rewards for hybrid drivers, and Toyota is still synonymous with hybrids in the consumer's imagination.

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