Aaron Hussain

Abstract

Honda Motor Company (HMC) is one of the worlds leading car companies. In
this paper the financial and economic analysis of the company will be discussed
and compared to one of its main competitors, Nissan. This discussion includes
an analysis of the companys demand function and revenue function obtained by
using company information; regression analysis; discussion of the cost structure,
total cost, average cost, and marginal cost functions; economic profit, output, and
product prices; and the market structure of the company.

Introduction
Honda states that their company is built on dreams. Its founder Socichior
Honda bases his philosophy on moving forward and being a visionary company
that is dedicated to human mobility and benefit [to] society. The corporate
website reads:
Our success in the global marketplace is the result of our continued investment in
America's future. We thank our customers for the support and trust they've
shown us. We look forward to challenging ourselves to create new products and
services that bring value to our customers and society during the next 50 years.
One of Hondas main competitors is Nissan, another Japanese car company.
We will compare the demand between the two companys family sedan sales in
the US.

Demand Analysis
The demand of one Hondas most popular vehicles, its family sedan, the Honda
Accord is given below according to US sales volume.
Honda Accord
Year

Base MSRP
U.S. Sales

2002

398,980

$15,500

2003

397,750

$15,800

2004

386,770

$15,900

2005

369,293

$16,295

2006

354,441

$18,225

2007

392,231

$18,625

2008

372,789

$20,360

2009

287,492

$20,905

2010

282,530

$21,055

2011

235,625

$21,380

In graph form, we see the downward-sloping curve of the Honda Accords

demand according to price in the past decade.

$25,000
$20,000
$15,000
Series1
Poly. (Series1)

$10,000
$5,000
$0
200,000

y = -5E-13x3 + 3E-07x2 - 0.0502x + 24778

R = 0.7019
250,000

300,000

350,000

400,000

We can the compare the data with Nissan Altima sales volumes in the past ten
years as well.
Nissan Altima
Year

Base MSRP
U.S. Sales

2002

201,822

$16,649

2003

201,240

$16,749

2004

235,889

$16,850

2005

255,371

$17,450

2006

232,457

$17,750

2007

284,762

$17,950

2008

269,668

$18,620

2009

203,568

$19,900

2010

229,263

$19,900

2011

268,981

$20,270

Nissan Altima demand in relation to base MSRP given in graph form:

$25,000
$20,000
$15,000
Series1
Poly. (Series1)

$10,000
$5,000
$0
200,000

y = -3E-12x3 + 2E-06x2 - 0.4255x + 47577

R = 0.0661
220,000

240,000

260,000

280,000

300,000

Price Elasticity
Given the formula for calculating price elasticity,
[(Q2-Q1) (P2+P1)]
[(P2-P1) (Q2 + Q1)]
ED=
we can calculate the price elasticity for each year starting from the second year
of the data, 2003. Let us start off by looking at Honda.
Honda Accord 2003
[(397,750-398,980)*($15,800+$15,500)] / [($15,800$15,500)*(397,750+398,980)] = -.1584
Inelastic
Honda Accord 2004
[(386,770-397,750)*( $15,900+$15,800)] / [( $15,900-$15,800)*(
386,770+397,750) = -4.4366
Elastic
Honda Accord 2005
[(369,293-386,770)*( $16,295+$15,900)] / [( $16,295-$15,900)*(
369,293+386,770)] = -.0231
Inelastic
Honda Accord 2006
[(354,441-369,293)*( $18,225+$16,295)] / [( 354,441-369,293)*(
$18,225+$16,295)] = 1
Unitary elastic
Honda Accord 2007

[(392,231-354,441)*( $18,625+$18,225)] / [( $18,625-$18,225)*( 392,231

+354,441)] = 4.6626
Elastic
Honda Accord 2008
[(372,789-392,231)*( $20,360+$18,625)] / [( $20,360-$18,625)*( 372,789
+392,231) = -.5710
Inelastic
Honda Accord 2009
[(287,492-372,789)*( $20,905+

$20,360)] / [( $20,905-$20,360)*( 287,492+

372,789)= -9.7812
Inelastic
Honda Accord 2010
[(282,530-287,492)*( $21,055+$20,905)] / [( $21,055-$20,905)*( 282,530+
287,492)]= -2.4350
Elastic
Honda Accord 2011
[(235,625-282,530)*( $21,380 + $21,055)] / [($21,380-$21,055)*(
235,625+282,530) = -11.8195
Elastic
Let us compare the elasticity of the Accord to Nissans family sedan, using sales
figures for the past decade.
Nissan Altima 2003
[(201,240-201,822)*( $16,749+$16,649)] / [( $16,749-$16,649)*(

201,240+201,822)] = -.4822
Inelastic
Nissan Altima 2004
[(235,889-201,240)*( $16,850+$16,749)] / [($16,850-$16,749)*( 235,889+
201,240) = 26.3685
Elastic
Nissan Altima 2005
[(255,371-235,889)*( $17,450+$16,850)] / [($17,450-$16,850)*( 255,371 +
235,889)] = 2.2670
Elastic
Nissan Altima 2006
[(232,457-255,371)*( $17,750 +$17,450)] / [($17,750-$17,450)*(
232,457+255,371)] = -5.5113
Elastic
Nissan Altima 2007
[(284,762-232,457)*( $17,950+$17,750)] / [($17,950-$17,750)*(
284,762+232,457)] = 18.0512
Elastic
Nissan Altima 2008
[(269,668-284,762)*( $18,620+$17,950)] / [($18,620-$17,950)*(
269,668+284,762)] = -1.4860
Elastic
Nissan Altima 2009

[(203,568-269,668)*( $19,900+$18,620)] / [($19,900-$18,620)*(

203,568+269,668)] = -4.2033
Elastic
Nissan Altima 2010
[(229,263-203,568)*( $19,900+$19,900)] / [($19,900-$19,900)*(
229,263+203,568)] = undefined
Nissan Altima 2011
[(268,981-229,263)*( $20,270+ $19,900)] / [($20,270-$19,900)*(
268,981+229,263)] = 8.6545
Elastic

Cross Elasticity
We will calculate the cross price elasticity of the Honda Accord to the Nissan
Altima by using the following formula:
Percentage change in quantity demanded of product-x divided by percentage
change in price of product-y
Year

Change in Demand of

Change in Price of

Cross-Price

Accord

Altima

Elasticity

2003

-0.31%

0.60%

-0.51

2004

-2.76%

0.60%

-4.58

2005

-4.52%

3.56%

-1.27

2006

-4.02%

1.72%

-2.34

2007

10.66%

1.13%

9.46

2008

-4.96%

3.73%

-1.33

2009

-22.88%

6.87%

-3.33

2010

-1.73%

0.00%

undefined

2011

-16.60%

1.86%

-8.93

Regression Analysis

Cost Analysis
For simplification purposes, we will consider the Research and Development
Expenses of Honda as fixed costs and Selling General and Administrative
expenses as variable costs. These costs are related to all the products that the
company sells, not strictly the Honda Accord. For simplification purposes, and
for this case study, we will assume that the Accord only product that Honda sells,
in order to demonstrate the cost structure of the company.

Year

Output

VC

FC

TC

AFC

AVC

ATC

MC

2011 235,625 16,683,000 5,883,000 22,566,000 24.97 70.80 95.77

2010 282,530 14,312,000 4,959,000 19,271,000 17.55 50.66 68.21
Numbers in Thousands

0.014235205

Profit Analysis
Year

Revenue

Cost

Economic Profit

2012

96,581,000

21,838,000

74,743,000

2011

107,829,000

22,566,000

85,263,000

2010

91,815,000

19,271,000

72,544,000

Numbers in Thousands
Profit rose in 2011 but has decreased this past year.

Conclusion
The structure of the auto industry is an oligopoly. Economics Online describes
an oligopoly as
An oligopoly is a market structure in which a few firms dominate. When a market
is shared between a few firms, it is said to be highly concentrated. Although only
a few firms dominate, it is possible that many small firms may also operate in the
market. For example, major airlines like British Airways (BA) and Air France
operate their routes with only a few close competitors, but there are also many
small airlines catering for the holidaymaker or offering specialist services.

Bibliography

"2011 Honda Accord Specs and Features." MSN Autos. N.p., n.d.
Web. 06 Dec. 2012.
"2011 Nissan Altima Specs and Features." MSN Autos. N.p., n.d.
Web. 06 Dec. 2012.
"^GSPC Historical Prices } S&P 500." Yahoo Finance. N.p., n.d.
Web.
"HMC Historical Prices - Yahoo! Finance." Yahoo! Finance. N.p.,
n.d. Web. 06 Dec. 2012.
"HMC Income Statement." Yahoo Finance. N.p., n.d. Web.
"Honda Accord Sales Figures." Good Car Bad Car. N.p., n.d.
Web.
"Nissan Altima Sales Figures." Good Car Bad Car. N.p., n.d. Web.
06 Dec. 2012.
"Oligopoly." Economics Online. N.p., n.d. Web. 06 Dec. 2012.

Attachments

Source: http://www.autoblog.com/2012/11/02/honda-marks-30-years-with-200million-upgrade-200-new-jobs-in/