The recent economic crisis had a tremendous impact on the industries all over the world. The demand trends, which were strongly emerging in the pre-recession period have been altered by the highly volatile consumer demand. The car manufacturing sector did not escape the fluctuations of consumer preferences either. Although the demand for all types of cars, including hybrids, declined due to the economic recession, manufacturers continue to produce hybrid vehicles, accumulating stock and creating a large surplus of the hybrids in the market. The impact of the overproduction can be explained through the law of supply and demand. As the car companies continue to expand their supply of hybrid models and maintain the current production level, the prices of their products decline. However, on the other hand, the demand for hybrid cars, or the amount of people, who are willing to buy them at various price levels, goes down due to the economic slowdown. The resulting effect is the surplus of cars, which is accumulated in the dealerships, incurring additional inventory costs.
Addressing the issue of hybrid car overproduction is not an easy matter. The decision to expand hybrid product offering often depends not only on the economic, but also on the political considerations. Firstly, environmentally friendly technologies are extensively supported by the government. Moreover, hybrid car production supports the image of socially responsible company, which is often crucial for promoting product in the market. Lastly, investing in the hybrid models today may largely contribute to the profits in the upcoming years, when the fuel prices are predicted to rise. As fuel is a complimentary product for cars, potential increase in fuel prices is likely to decrease the demand for traditional cars, thus driving the need for hybrid alternatives (Gorchels).
Despite the potential benefits of hybrid cars, the current market supply of them by far exceeds the demand. In order to reduce the amount of stock, car producers and dealers offer cash rebates and special deals for their customers. Although such conditions lead to large losses for the producers, some of the customers take advantage of the current price situation.
The current situation in the hybrid car market can be characterized by a number of tensions. On the one hand, consumers find it less attractive to buy hybrid models, thus reducing their demand. On the other hand, production is not adjusted to the new demand level due to political pressure and additional economic incentives from the government. While rising concerns about sustainability and environment drive supply up, the decrease in oil prices leave few incentives for the buyers to pay extra. Although the difference in the objectives makes it hard to find a way out from the current hybrid market crisis, the supply and demand discrepancy has to be resolved in order to eliminate the surplus of vehicles and to reduce inefficiencies, which may jeopardize the future and long-run competitiveness of the car manufacturers.
References
Gorchels, Linda. The product manager's field guide: practical tools, exercises, and resources
for improved product management. Columbus, OH: McGraw Hill, 2005. Print.
