The Key Factors Influencing The Demand For Honda Civic Cars In The Uk
In my opinion there are four main factors that influence the demand for Honda civic cars in the UK. These are availability of motor finance, sales promotions/advertising, changing economic factors in the UK economy and the announcement of the diesel ban in 2035. These four will affect demand for Civic cars on different levels compared to the market rivals. With finance and advertising being specific to the car manufacturer (i.e. Honda), and changing economic factors influencing the new car market as a whole.
The cost and availability of motor finance (credit) plays a major role in the demand for new cars. As new cars are seen as a durable good. A durable good is ‘a consumer good that do not wear out quickly, and therefore do not have to be purchased frequently’. This means that consumers can wait until the time is right to buy the durable good, in this case a new Honda Civic car. The ‘right time’ is usually at a time where there are offers or promotions, such as 0% finance. Meaning that you don’t have to pay interest back on the purchase price of a car. Which you pay for monthly or weekly, instead of paying for the car upfront. As most households do not have the savings or disposable income to purchase a car outright. This is attractive to the consumer as it means that (assuming rationality) the consumer is better off buying the car at this point than they are when there aren’t promotions on the financing of the vehicle. As usually the consumer would have to pay 5.9% interest on the purchase price of a new Honda car, when buying the cart on finance. This would cost the consumer between, £2000-3000 more, for the privilege of using credit to buy the car. Hence this makes the consumer worse off. So, they don’t mind waiting until a promotion to buy their durable good. Additionally, Honda could also offer different promotions, such as scrappage schemes or low deposits on financed cars, to encourage customers to purchase new Honda Civics. This would again encourage consumers to purchase the car as they would be better off using the promotions to their advantage than waiting until the promotions have expired, to buy their new car. These factors would increase immediate demand for Honda Civics.
Furthermore, changing economic factors such as ‘Gross National Product (GNP), the employment rate, the discount rate, the population growth rate, and others. These economic factors have major effects on the manufacturers of durable goods.' These effect the amount of disposable income consumers have, as well as affecting consumer confidence. In periods of economic boom, consumers are more confident, have more disposable income (higher levels of employment) and higher savings rates. Meaning the consumption of durable goods is more attractive. However, on the flip side, in a recession durable goods, appear more expensive, and because of lower consumer confidence less are consumed. This affects the new car market as a whole, not individual manufacturers as stated above.
Finally, as the majority of the UK are falling out of love with diesel cars, due to a collapse in public trust and the proposed ban from 2035. The demand for diesel cars has never been less. With sales of diesel cars plummeting by 30% in 2018. This has put demand for the Civic under huge strain. As Honda Civic cars largely have diesel engines. Due to the fact diesel engines are 20% more economical than petrol cars. This has meant that consumers have had to rethink their purchase of the diesel Honda Civic in the UK. And has meant that there is no longer the demand for Civic cars in the UK, hence the closing of the Swindon Factory.
To forecast the demand for Honda Civic cars in the UK, I would use Judgemental forecasting. Judgemental forecasting, ‘is the only option, such as when there is a complete lack of historical data, or when a new product is being launched, or when a new competitor enters the market, or during completely new and unique market conditions.' There are three settings in which Judgemental forecasting could be used: When there is no available data, so that statistical methods are not applicable and judgmental forecasting is the only approach. When data is available, statistical forecasts are generated, and these are then adjusted using judgement. Or finally when data is available and statistical and judgmental forecasts are generated independently and then combined.
I believe that the demand market for Honda Civic cars falls under the third setting. Such as there is data from previous years of selling Honda Civic cars, but I feel that as the car market is constantly evolving. As Honda redesign the Civic car every year to ensure its up to date with the latest technology and meets all health and safety regulations. Meaning that it is very hard to base all assumptions off previous demand data. Expert knowledge of the market is also needed to provide the best possible forecasts, as external factors (as stated above) such as economic change will always play a part. And will not be included in the statistical data. Especially at this point in time, with large amounts of economic uncertainty regarding the Brexit negotiations. Additionally, as Honda is a very large multinational firm, I would suggest that there is a board in each country that makes the judgement on behalf of the company. As a native of that country are more likely to know what is going on with regards to economic state, and long-term trends (consumer confidence, savings rates, preferences). Also, a board (multiple people) will be more accurate that an individual doing the forecasting. This is because a board will offer more points of view than an individual. Which will incorporate more factors into the forecasting. As a result of this key assumption, the board will be able to follow the Delphi method. The methodology behind the Delphi method generally involves the following stages:
- A panel of experts is assembled.
- Forecasting tasks/challenges are set and distributed to the experts.
- Experts return initial forecasts and justifications. These are compiled and summarised in order to provide feedback.
- Feedback is provided to the experts, who now review their forecasts in light of the feedback. This step may be iterated until a satisfactory level of consensus is reached.
- Final forecasts are constructed by aggregating the experts’ forecasts.
After the board have followed through these steps they will combined their judgemental forecasting and the statistical data. This will create the most accurate forecast available to Honda, for the Civic market. The statistical data I would use, would be a combination of previous sales data and the economic factors (economic growth, unemployment, etc). Because from this we would be able to draw comparisons about previous years with similar economic conditions to present. However, this couldn’t be done on its own as the forecast would not be anywhere near as accurate. As sales of Honda Civic are an independent variable in the sense that they may have sold so many cars last year. But this year it is not guaranteed that they will sell the same number. Its dependant on other factors, and that’s why the judgemental forecasting method is needed.
References:
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- Otexts.com. (2020). 4.3 The Delphi method | Forecasting: Principles and Practice. [online] Available at: https://otexts.com/fpp2/delphimethod.html [Accessed 7 Feb. 2020].
- Kochanova, A. (2020). Input–Output Analysis I – Lecture 7.
- Investopedia. (2020). Understanding Bottlenecks. [online] Available at: https://www.investopedia.com/terms/b/bottleneck.asp [Accessed 9 Feb. 2020].
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- CAR Magazine. (2020). Should you still buy a diesel car in 2020?. [online] Available at: https://www.carmagazine.co.uk/car-news/motoring-issues/should-i-buy-a-diesel-car-uk-tax-scrappage-ban/ [Accessed 9 Feb. 2020].
