Chrysler and the Economy

DaimlerChrysler and the Economy

DaimlerChrysler is one of the world's leading automotive companies, providing customers with a wide range of products ranging from subcompact cars to full size trucks. The minivan is one of DaimlerChrysler's top selling vehicles; however in today's competitive environment, they are slowing losing there share of the market. It is important for DaimlerChrysler to remain competitive. In the following paragraphs, the importance of product pricing will be discussed, as well as the importance of analyzing the costs and market structure in which it exists. Economic forecasts and indicators will be used to help determine the effects of changes in the economy on demand for minivans.

Individual Product Pricing Component

Competition has played a major role in the minivan market segment. Through diffusion, almost every automaker has a version of the minivan available. As of 2004, there are 17 models on the market today, ranging in price. Dodge strategically produces 3 models to cover most consumers' wants and needs. With consumers having there choice of minivans, a substitute for the Caravan is readily available so DaimlerChrysler must competitively price their minivan. Below is a chart that shows the Caravans direct competition and indicates where DaimlerChrysler is compared with in pricing terms With competition being a major issue that affects demand and price is competition, the more strategic the pricing needs to be. DaimlerChrysler has to be sure to price according to other vehicles or consumers will chose the competition.

With DaimlerChrysler's three categories in the minivan segment, they are priced quite competitively.

Kia Sedona $19,908

Dodge Caravan $20,203

Mazda MPV $21,720

Chevrolet Astro $21,891

Ford Windstar* $22,008

Chevrolet Venture $22,503

GMC Safari $22,541

Pontiac Montana $24,365

Dodge Grand Caravan $24,569

Chrysler Town & Country $25,970

Oldsmobile Silhouette $26,575

VW Eurovan $27,185

Honda Odyssey $27,351

Ford Freestar $27,544

Mercury Monterey $29,113

Nissan Quest $29,182

Toyota Sienna $29,704

The price elasticity of the demand of the Caravan is relatively elastic. This is because consumers are highly responsive to the price changes of a vehicle. Any modest change in price causes a large change in demand. The Caravan has many competitors, meaning that if DaimlerChrysler chooses to increase price and other companies do not, demand for the Caravan will decrease and these consumers will chose a minivan that has not seen a price increase or consumers may purchase cheaper sub-compact cars. Vehicles in general are also high in price relative to one income which also leads to the minivan being price elastic.

There are many issues that affect consumer demand and the price. A major issue that affects consumer demand is the product offerings and options. What does the vehicle offer consumer that sets itself from the rest? This is a very important issue because most minivans are all competitively priced and by distinguishing themselves from the rest, the Caravan's demand will increase. Currently DaimlerChrysler is the only minivan that offers the new "Stow n' Go" seating system. The second and third row seats fold away for more storage space. DaimlerChrysler increased the price slightly due to the added feature; however added benefit outweighed the price increase and has increased demand slightly.

Cost Component

Price is also affected by the cost of production. DaimlerChrysler must be sure to price the vehicle so that all costs are being covered. Over the years the cost of production has increased causing manufacturers to increase the overall price of vehicles. Inflation itself has caused the price of vehicles to increase over the years. General price increases for material such as steel and labor have also caused the cost of vehicles to go up over time.

As mentioned above, DaimlerChrysler must keep costs to a minimum. Outsourcing parts is one of the main ways DaimlerChrysler cuts costs. It is less expensive to have a supplier build a part and ship it in rather then having it done in house. This also leads to a further costs reduction in that less manpower is needed and jobs are be cut. Unfortunately this leads to lay-offs; however it does enhance revenues for DaimlerChrysler. Outsourcing is quite attractive when the foreign exchange rate is good for our dollar. When our dollar is worth more, outsourcing to other countries helps save us money and thus leads to further cost savings, maintaining the current price of the vehicles. The consumer is not past any price increase.

Technology has a great impact on productivity and average total cost. Through increased R&D expenditures, technology advances in terms of production capabilities can be achieved. Through lean manufacturing programs, DaimlerChrysler has been able to keep costs increases to the minimum, therefore not affecting final cost to the consumer. New equipment with better and more efficient technology can lead to more efficient assembly line speeds. The introduction of more advance machinery and robotics has allowed DaimlerChrysler to reap the benefits of technology. The increase in line speed means more vehicles can be produced per shift. Ergonomics has also contributed to cost as well. Although the new machinery and equipment has cost the corporation more, the return on such investment is worthwhile. When more vehicles can be produced more efficiently, the total products curve shifts upward thus leading to a downward shift in the companies average total cost