Producer Price Index and the Automotive Parts Retailing Market Essay Example

📌Category: Business, Marketing
📌Words: 667
📌Pages: 3
📌Published: 02 June 2022

In order for a company to be successful in selling a product the company must consider  the supply, demand, and price for that product. In this assignment, one will gain insight on how the supply, demand, and price has impacted the market for automotive parts retailing. One of the tools that will be used to analyze the market for automotive parts retailing is the Producer Price Index (PPI). 

Economic Constraints

The automobile parts retailing market is a lucrative business that is continue to see profits increase. During the COVID-19 pandemic the automobile parts retailing market has shown little to no impact unlike other markets. As other markets continue to suffer, automobile parts retailers have consistently seen an increase in sales (PYMNTS, 2021). Companies that saw significant increase in sales were Amazon, O’Reilly, Advance Auto Parts, and AutoZone. The increase in sales can be contributed to the importance of maintaining a vehicle to most consumers. When it comes to automobiles, consumers have to deal with the normal wear and tear and the uncontrollable accidents that happens. Also, one cannot forget how the automobile parts retailing market is capitalizing on the COVID-19 pandemic. Like most markets, the automobile parts retailing market is seeing an increase in profits due to the shortage of supplies. In order for one to comprehend this one must understand the law of supply and demand. The theory of the law of supply and demand pulls from both the law of supply and the law of demand. Under this theory when the supply is increased the demand is decreased and vice versa. When the demand is increased and the supply is decreased one will see that the price is gradually higher when compared to the supply being increased and the demand being decreased (Kramer, 2021). This is due to the fact that as companies have an influx of products that consumers are slowly buying the company will decrease the price in an attempt to recoup losses and expand unsold inventory.

Producer Price Index

To further understand the growth of the automobile parts retailing market one can, analyze the Producer Price Index (PPI). The Producer Price Index is a tool that is a collective group of indexes used to measure inflation by calculating and representing the average movement in selling prices for domestic production over time (Majaski, 2021). Below one can see a chart representing the last four months of the automobile parts retailing market Producer Price Index. When observing the Producer Price Index for the automobile parts retailing market, one can see that the change each month is a positive increase. The Producer Price Index for the months of May to October are 150.2, 162.6, 166.7, 173.1, and 185.2. As one can see in Figure 1, that for five consecutive months the Producer Price Index. Additionally, the Producer Price Index (PPI) increased when compared to a year ago shows an increase of over 50 indicating that the market is doing better from last year. As this news may be received negatively by consumers, the news is a positive for the businesses. Due to the fact that the increase of prices absorbed by the companies will be passed on to the consumer.

In the Producer Price Index, the producer is a significant stakeholder. The Producer Price Index is an indicator of how the price of a product is impacted between the producer and the wholesaler. A higher Producer Price Index, allows for producers the opportunity to charge more for a product to compensate for the total cost invested in the product. Although in some instances a producer price may remain the same or fluctuate when a contracted is held between the producer and the wholesaler. Usually when a company is in contract with a producer the price is locked in or the company or producer will have a clause to adjust the price depending on the Producer Price Index (Majaski, 2021). Having this clause.in place helps to reduce the risk of lost profit for either entity.

Conclusion

In conclusion, post pandemic the automotive parts retailing market has become a very lucrative business compared to other markets. A tool that one can use to help see the progression of the automotive parts retailing market is the Producer Price Index. As the Producer Price Index increases, the chances for both the producer and wholesaler to make a profit increase.

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