Federal Chamber of Automotive Industries

Question: Discuss about the Federal Chamber of Automotive Industries. Answer: Introduction Many service providers characterize the global Insurance industry. Competitors find it difficult to maintain customer loyalty for a long period because of the services provided by them is similar. In such an industry, there is the need to conduct a market feasibility study before investing more money. One method of examining the market is through examining its performance over the past periods (Tsay, 2005, p. 98). Focusing on the past changes in the market will help in projecting its future performance. One way of anticipating the future performance in the market by evaluating the past performance is by using the time series technique. This paper examines the performance of the Australian Insurance industry. The focus is to advise the Company that sells insurance to new car owners the anticipated changes in the market each month for two years between July 2017 and June 2019. New Motor Sales in Australia between 2007 and 2016 Years New Sales 2007 1,049,449 2008 1,010,500 2009 920,109 2010 1,028,673 2011 1,025,935 2012 1,111,975 2013 1,135,669 2014 1,113,919 2015 1,155,408 2016 1,172,319 Table 1: (Australian Bureau of Statistics, 2016); (Cain, 2010); (Federal Chamber of Automotive Industries, 2015); (Federal Chamber of Automotive Industries, 2016); (The travel almanac, 2016) The following time series was generated from the data stated above; New Motor Sales in Australia between 2015 and 2016 by Months New Motor Sales in Australia between 2015 and 2016 by Months Months New Sales 2015 2016 January 93,220.40 98,342.40 February 96,231.10 98,871.50 March 95,000.10 98,057.50 April 94,757.80 97,956.00 May 94,512.00 96,348.30 June 97,104.20 99,010.30 July 96,324.20 99,070.30 August 95,212.60 98,248.70 September 97,042.80 99,923.90 October 96,580.00 97,494.10 November 97,866.10 97,876.50 December 96,824.00 96,929.00 Table 2: (Australian Bureau of Statistics, 2016); (Federal Chamber of Automotive Industries, 2015); (Federal Chamber of Automotive Industries, 2016); (The travel almanac, 2016) Using a 10-year period to analyze the number of new motor vehicles purchased and registered in Australia is significant for the study because it covers a large scope of time. The company will exclusively analyze the trends in the motor vehicle market because it directly affects the performance of insurance industry. Illustration: The number of new motor vehicles purchased and registered in Australia keeps increasing each year apart from in 2009. Apart from 2009 which registered only 920,109 new motor vehicles, all the other years registered over One million sale of new motor vehicles. It can be anticipated that the purchase of new motor vehicles would increase in future. The number is projected to head over 2 million new motor vehicles between the years 2023 and 2025 (Riley, 2011, p. 41). Between 2015 and 2016 on a Monthly basis The insurance policies offered by the company are not renewable after the expiry of the 12-month period. The firm focus on the news cars as their target market. This justifies the type of data used in the time series analysis. The data shows the number of news cars which were purchased and registered in 2015 and 2016 on a monthly basis. Using newly purchased cars is relevant to the analysis because it helps to understand the trends in the market. Second, a choice of 2015 and 2016 years provides the most recent data on the new cars bought. The information captured in the two years is a reliable predictor of the future performance (Riley, 2011, p. 44). The sales of new cars in Australia increased in 2016 compared to 2015. However, the pattern of purchase is similar between the two years. High purchases of new cars are high between May and September but fall between October and November. With the current trend, it is evident that the purchase of new cars is likely to increase in the future. The firm should, therefore, capitalize on such future opportunities. For example, the firm should intensify on its marketing methods to attract more customers to its services. For the time series, it can be projected that in future the new purchases and registered motor vehicles to hit 100,000 per month. This is an indication that the number of insurance providers will increase as well as the competition in the industry. The information is crucial because it has the influence on the firms performance and profitability in the future. Comment on what factors are likely to have influenced the nature of the time series? What circumstances may have produced certain characteristics of the time series? Will those circumstances apply to future periods? The factors associated with the changes in the demand for new motor vehicles in Australia are economically instigated. There is a probability that the factors discussed below influenced the time series between 2007 and 2016. Likewise, the factors are more likely to influence the motor vehicle industry in the future as well. Change in Real income versus the motor vehicle prices Motor vehicles are characteristic with high elasticity of demand. When the real income is increased at a higher rate compared to the inflation, the demand for new cars increases because many people can afford their prices. In 2009 many people could not afford new motor vehicles following the global economic recession experienced in 2008. The inflation rate and taxes imposed on the normal goods were high (Cain, 2010). However, as the many countries started to recover from the financial crisis, inflation and tax rates dropped hence motor vehicles became more affordable. In 2012, real income for employees was increased leading to an increased amount of disposable income (Riley, 2011). Although some people can buy new motor vehicles using cash, many people rely on financial credit. In Australia, it is difficult to new financial loans so as to finance new cars. Likewise, the interest rates charged are high especially on unsecured loans (Cain, 2010). When collateral imposed to access car loans are high, then many people will shy away from purchasing new motor vehicles. The same case applies when the interest rates are high. This can be associated with low purchases of new motors vehicles in 2009 and increased purchases after that when the rates were reduced, and the amount of collateral required dropped. The cost of maintenance The cost of maintaining a motor vehicle is high especially during double-digit inflation. The cost of petrol, as well as insurance premium, is increasing rapidly. However, it should be noted that cost of petrol and insurance premium does not have a high impact the demand for new motor vehicles. The new model of motor vehicles consumes little amount of fuel as compared to the old models (Riley, 2011). Apply appropriate methods to smoothe the time series and help identify the relevant underlying components of the time series. Provide numerical estimates for the underlying systematic components. Smoothing is meant for better analysis of the trend or pattern in the time series. Smoothing techniques are used to smooth the irregular trends within the time series pattern. For the purpose of the forecasting on the future trend in purchasing new motor vehicles, moving averages technique will be used for data smoothing. The moving average method refers to calculating the average of the most recent data (n-values) (Tsay, 2005). The average obtained is then used to forecast the future performance of the market. However, the assumption made is that the items under stay would remain constant over time. For example, It should be assumed that the real income for the Australian would increase or remain constant, the motor vehicle loans would be easily accessible, and the cost of maintaining these vehicles would remain constant (Tsay, 2005). For the purpose of this smoothing the time series, a 2- year moving average calculated as shown below; New Motor Sales in Australia between 2007 and 2016 Years New Sales Moving Total Moving Average 2007 1049449 N/A N/A 2008 1010500 2059949 1029974.5 2009 920109 1930609 965304.5 2010 1028673 1948782 974391 2011 1025935 2054608 1027304 2012 1111975 2137910 1123219.6 2013 1135669 2247644 1123822 2014 1113919 2249588 1124794 2015 1155408 2269327 1134663.5 2016 1172319 2327727 1163863.5 Note: The data captured under the Moving Average will be used for the forecasting purpose because it has been smoothened. Provide at least one appropriate time series model for the time series you have selected. Justify your choice of model. For this model provide forecasts for Jul-17 to Jun-19. The moving Average time series model has been used to forecast the future sales of new motor vehicles in Australia between July 2017 and June 2019. The new time series is as shown below; References List Australian Bureau of Statistics, 2016. Survey of motor vehicle use, 9208.0, s.l.: Canberra, ABS. Cain, F., 2010. How many miles around the earth?, s.l.: Universe Today,. Costello, M., 2015. Growth brands of 2015 so far, s.l.: caradvice.com.au. Federal Chamber of Automotive Industries, 2015. 2014 new car market, s.l.: s.n. Federal Chamber of Automotive Industries, 2016. February new car market highest on record, s.l.: s.n. Federal Chamber of Automotive Industries, 2017. 2016, 2015 new car sales results, s.l.: s.n. Jericho, G., 2015. Car sales show our economy isn't motoring along. [Online] Available at: https://www.abc.net.au/news/2015-06-24/jericho-car-sales-show-our-economy-isnt-motoring-along/6568744 [Accessed 18 April 2017]. PennState Elberly Colege of Science, 2013. Smoothing Time Series, s.l.: The Pennsylvania State University. Riley, G., 2011. What economic factors affect the demand for new cars?. [Online] Available at: https://www.tutor2u.net/economics/blog/economics-qa-what-economic-factors-affect-the-demand-for-new-cars#profile [Accessed 18 April 2017]. Statistics, A. B. o., 2014. Motor vehicle census, Australia, s.l.: ABS, Canberra. The travel almanac, 2016. Around Australia Trivia, s.l.: s.n. Tsay, R. S., 2005. Analysis of Financial Time Series. Nwew York: John Wiley SONS.