The Effect of Economic Difficulties on Automobile Demand in Europe

The economic downturn in Europe has resulted in widespread poverty and deprivation for the bulk of the population. Economic insecurity causes the society to reorganize their financial goals. The condition has an effect on consumers’ buying power for essential goods, which in turn has an impact on product manufacturers and suppliers. The automobile industry has been severely affected by the global downturn, resulting in a significant decrease in revenues that will not even recover until the crisis has ended. In the long run, economic distress can result in the closing of major European firms, job losses, and economic pain. There is reduced demand for the automobiles among the majority of the youth in Europe due to the rising levels of unemployment and other factors such as the ever rocketing fuel prices, the existence of more durable vehicles and few young people getting licenses(Fuhrmans).

Besides, the high cost and growing longevity of motor vehicles have prompted buyers to postpone purchases that they might otherwise have made. The case alongside the fall in miles driven annually since the turn of the century has greatly reduced wear and tear hence reluctance among the population to replace cars more often. Most importantly the ever-increasing population in Europe has led to a dense public transportation system hence more ore people have snubbed acquisition of new car models. In the end, this has suppressed sales(Fuhrmans).

Determinants of Demand for Automotive

The demand determinants refer to various factors that cause the demand curve of the auto motives to shift. Any slight change in the elements of demand will result in the change of quantity demanded on the market even if the price factor remains constant. The key determinants of demand include the income change, consumer taste and preference and the consumer expectations.

Consumer Taste and Preference

There is a direct relationship between quantity demanded and taste. For instance, if consumers’ taste and preferences change in favor of a commodity, demand will increase. On the other hand, if taste and preferences change against the commodity such as the changes in fashion, demand will fall. Personality characteristics, occupation, advertising, age and product quality, all are key factors affecting consumer behavior and, therefore, demand. In Europe’s economic distress the automobile industry suffers due to lack of financing. Therefore advertising and marketing is the key factors that sway consumer taste face budget constraints (Supply and demand).

Consumer expectations

The fact that there is no perfect and permanent economic situation there exists room for speculation by consumers. This leads to expectations for either a higher income or higher prices increase depending on the prevailing economic situations. Expectations for a lower income or the lower prices decrease the quantity demanded. Consumers of automobiles often had positive hopes about non-ending European financial crisis. During this period the loans, which are the primary financing method, are expensive to acquire and the majority of the population tend to avoid them. Auto industry observers cite car loans as the biggest driving factor for expansion of the Compact Car segment, almost 85 percent of all new car sales are backed by auto finance, compared to 65 percent five years ago(Supply and demand).

Change in income

The income change refers to the disposable income available to the consumers of automobiles that can be spent on purchasing them. Change in income of automobile buyers will affect their ability to acquire new items from the market. In good economic times, the disposable income available is huge therefore high purchasing power which translates into the high demand for the automobiles. Elsewhere in times of economic distress, the disposable income is not sufficient hence this forces the consumers to reorganize their plans(Fuhrmans). Priority is given to the basic needs whereas luxurious sectors such as the automobile sector tend to suffer as their output is less demanded by the buyers. The producers of such items tend to either collapse or shrink regarding production, and this leads to mass lay off of the staff hence affecting the entire national and global economy.

The Supply-Demand Diagram Due to the Consumer Income

The diagram alongside is an illustration of how income affects the demand for automobiles in Europe. In situations of good economic conditions, there is adequate disposable income in the economy hence the purchasing power of the population is high, and more of the commodity (cars) will be purchased. Therefore the demand curve shifts from the original position d0 to new position d1. At this new position the producers make a lot of sales due to high demand by the consumers. When the disposable income slightly decreases, say due to tough economic times, demand for such commodities will dip therefore the demand curve shifts to new position d2, and fewer sales are recorded.

Works Cited

Fuhrmans, Vanessa. “Europe’s Car Makers Spin Their Wheels.” WSJ, 1 Oct. 2013, www.wsj.com/articles/europe8217s-car-makers-spin-their-wheels-1380592110. Accessed 4 December 2017

Supply and demand. (2017). In P. Lagasse, & Columbia University, The Columbia encyclopedia (7th ed.). New York, NY: Columbia University Press. Retrieved from https://search.credoreference.com/content/entry/columency/supply_and_demand/0Accessed 4 December 2017