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Supply And Demand
One of the fundamental concepts of economics is supply and demand. With this concept, you can maximize the profits of your company by creating equilibriums.
Production and inventory are your supply. Demand is the sum of your sales and missed sales.
You control production unless you have enabled AutoProduction. Sometimes random events may cause a decrease in production. But for the most part, you control vehicle supply.
Two factors can change demand: pricing and availability. Increasing the price of a model will reduce demand, whereas decreasing the price will increase demand. Opening new dealerships and branches in new markets will increase availability, thus increasing demand. Closing branches has the opposite effect.
Ideally, you want production to match demand. This is equilibrium.
How Does It Work In Game
Let's look at some in game situations that you might find yourself in. And how you should approach supply and demand to maximize your profits.
Too Much Supply
Too much supply sounds like an easy problem. Cut production and be done with it. However, there is usually a better way to go about it. Ideally, you would have all your factories operating at 100% capacity with no missed sales. By doing this, you're minimizing your costs per unit while not wasting money overproducing the model.
Take, for instance, the start of the game. You'll have a factory that can produce 100 units a month. But with your first model, you might only sell 10 units a month. Instead of cutting production down to 10 units, it would be wiser to increase demand for the model. That way, you are utilizing your spare factory production at full capacity. So how do you increase the demand for a model? There are two ways to go about it. You can decrease the costs of the vehicle, or you can open new branches. When cutting costs, you need to determine if the additional units sold at the new price will generate more revenues and more profits than producing fewer, more expensive units. If you have not yet expanded your company to new locations, this sometimes is a better option, as you will grow the population pool of customers you can sell to.
However, if you have more than one model and those units have too much demand, increasing the demand of the underperforming unit might not be the best idea. Instead, you may be better off reducing productions to match demand while using the excess production capacity to meet the needs of the other models. Alternatively, you could produce additional vehicle models to fill that excess capacity.
Too Much Demand
If you have too many missing sales, then you have too much demand. The obvious solution is to increase production so that supplies can match demand. But what if you don't have any spare production capacity? Building a factory takes time and is very expensive. If you continue with missing sales, you'll be missing out on additional revenues.
So what is the solution? Raise the sales price of that model until demand equals the number you produce. By doing this, you're maximizing the amount of money you make per vehicle without reducing sales.
Excess Capacity During Recessions
While playing, you might notice when times are good, you can sell a lot of vehicles. But when times take a turn for the worst, there is a massive decline in sales. When this happens, you might have factories that don't produce anything or branches that sell nothing. Tweaking prices or opening new branches can only get you so far before they're unprofitable. If you find yourself in this situation, it might be better to close idled factories and unprofitable branches. Otherwise, you could bleed away the cash you need when the market turns back around.