1. In the first quarter of 2003, DaimlerChrysler generated 588 million euros profit. Explain why shareholders may still be unhappy with DaimlerChrysler and wish to sell their shares with reference to the economic concepts of opportunity costs and accounting versus economic profits (rents).
2. Toyota has extremely high expectations of suppliers (quality, cost, and performance) and in exchange offers closely integrated long-term relationships. Suppliers are required to locate at or near Toyota assembly facilities. They must agree to inspections and being advised by a special Toyota manufacturing consulting organization. Read the two excerpts on Toyota's relationship with suppliers ("How Toyota Defies Gravity" (Fortune, December 8, 1997) and "Will the Corporation Survive?" (Economist, November 1, 2001)), and then answer the following questions.
b. What specialized investments, if any do Toyota suppliers make in order to transact with Toyota? Does Toyota make any specialized investments?
c. Outline the implications for Toyota and its suppliers from (a) in economic terms.
3. According to a 2000 study by PricewaterhouseCoopers, entitled "A2C: The Second Automotive Century"(no article attached), vehicle manufacturers are expected to go to the market for more of their manufacturing needs (including outsourcing final assembly).
"Vehicle manufacturers will focus more on relationships with consumers, and transform themselves into "Vehicle Brand Owners" (VBO's), re-deploying much of their present responsibilities for co-ordination, sequencing and final assembly of vehicles to suppliers. Ultimately, production and assembly of entire vehicles could be outsourced to new mega-suppliers. The changes are already starting, and could be complete as early as 2005."
Explain the benefits to vehicle manufacturers of using the market with reference to transaction cost economics.