Valuation of quality attributes in the price of new economy cars

Nuno Manoel Martins Dias Fouto

doi:10.5700/rege425

Abstract

The purpose of this study is to value the quality attributes of economy car models, that is, vehicles with a 1000 cc engine. With the liberalization of the domestic automotive market, the sector has been experiencing a growing market development and technology expansion which allows for the sale of more varieties and types of vehicles, each with a wide range of options, accessories and comfort items available as options for consumers. Based on the available attributes for each item, the consumer will choose those he perceives as useful depending on his perception of usefulness and quality. Among the different methods of quality valuation, this paper explores the theory of hedonic prices. According to the model proposed, it is possible to identify that the brand is the main attribute of valuation in the composition of the price of economy cars. At this point, it is possible to observe the companies’ actions in the attempt to reposition their products in the consumer’s mind. In comparison with similar studies, it is possible to notice that economy cars have evolved in terms of accessory availability. These results can also contribute as a point of reference for the automakers to better plan the vehicle, giving priority to types of vehicles that are consistent with the preferences of their consumers.

Highlights

The 90’s marked a transformation in the global automotive industry, which the literature generally refers to as the globalization of the automotive industry
It is based on the assumption that it is possible to assess the relative importance of each attribute by obtaining the value assigned by consumers to items incorporated into the vehicles due to the different models available in the market. Following this introduction, we present the theoretical reference on the definition of quality and how it can be measured by using the theory of hedonic prices, which supports this research, followed by the methodology applied in the study and the analysis of the main results
Among the several approaches found for valuation, the Theory of Hedonic Prices has been widely used in the literature as a theoretical tool to measure the influence of one or more characteristics in the observable price of goods

Summary

Introduction

The 90’s marked a transformation in the global automotive industry, which the literature generally refers to as the globalization of the automotive industry. In Brazil, the liberalization of the domestic market, with the gradual reduction of import tax rates and the influences provided by specific incentive policies, such as the agreements of Sectorial Chambers (1992 and 1993) and the automotive regime (1996-1999), influenced the performance of the Brazilian automotive industry over the decade. During this period, the country witnessed the direct investment of companies such as Honda, Audi, Daimler, Mitsubishi, PSA-Peugeot, Citroën, Renault, and Toyota, and more recently, Nissan and Hyundai. This massive and abrupt entry leads traditional automakers, already installed in the country, to reinvest in the expansion of their facilities and to open new plants (CAUCHICK MIGUEL, 2006)

Objectives

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Results