Supply and Demand

There are many factors which cause changes in supply and demand when making a purchase of a high ticket item such as a new vehicle. The time of the year is often one of those possible causes. Some people wait until the end of the year when vehicle prices may decrease as a result of year end taxes or the New Year vehicles hitting the market. This helps in depleting the current inventory and making room for new inventory. Others may wait until tax time if he or she is expecting a refund to avoid having to save the money for the down-payment throughout the year. This cycle creates a constant change in supply and demand where consumers demand for and manufacturers supply new vehicles.

Supply and price of gasoline is another factor which contributes in the decision of the type of new vehicle purchase. As gasoline prices increase, the demand for larger vehicles decrease and the demand for smaller fuel efficient vehicles increase. The supply for the larger vehicle remains constant while the demand decreases.

Consumers in general search for more cost efficient transportation, and the supply of newer hybrid or electrical vehicles may be a more desirable option. When deciding on a new vehicle which provides new technology such as the hybrid or electrical vehicle, challenges may arise for individuals where the cost may outweigh and eliminate the individual demand.

Rebates and tax incentives are a driving factor where the government may offer the incentive or rebate for trading in old clunkers for new vehicles. In 2009, the United States Government rolled out a plan to remove older environmentally unfriendly vehicles called "Cash for Clunkers" in which the consumer would trade in his or her old vehicle for a new vehicle which would be environmentally safe. The program was effective and successful in such a short time that the Government depleted the allotted amount very quickly. "In just a few short weeks of sales, nearly 680,000 older vehicles were replaced by new, more fuel-efficient vehicles" (CARS: Car Allowable Rebate System, 2009). In this case, the supply and demand increased because of the $3,500 or $4,500 tax credit the consumer would receive as an incentive.

It is often that a consumer will prefer a certain make and model of a vehicle, yet when arriving at the dealer, the vehicle may not be available. For example, when the economy is declining, smaller vehicles like the two- or four-door Pontiac Grand Am may be high in demand to avoid high gasoline prices; however, the car dealer may not have the specific vehicle which may cause an increase in the price. This increase may result in the consumer making a decision in purchasing a different vehicle, and therefore, the demand for the Grand Am may decrease. Once the dealer received a new stock of the Grand Am, the price may decrease because the over-supply of a vehicle not low in demand.

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