Production and Costs

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Walmart will have ample supply of quality tires purchased at rock bottom wholesale discount rates (Schwartzberg, 2012). In cases where tires have to be shipped from a warehouse I don’t consider that to be a variable input but a fixed cost. Walmart will determine the margin in which they want to make a profit in the process of sales. Walmart is known for low prices therefore the mark up in price for tires is not overly inflated. Like the others in a perfectly competitive market, Walmart Auto patiently waiting to see a small profit margin in the long run (Markgraf, 2016).

[pic 5]

Exhibit 5

Marginal cost includes variable costs but not fixed costs (Wilkinson, 2013). The lowest amount a firm is prepared to price a product or service is at the variable cost (Boundless, 2016).

Recommendations

Walmart has an advantage over their competitors because of Walmart’s great wealth and land acquisitions (Walmart, 2016). Things such as space, location, accommodations and land permits are major obstacles and considerations for the Jiffy Lube franchise, but considered incidental extra expenses for the giant retailer (Walmart, 2016). Walmart Auto does not expect to see any profits in the short or medium run but instead in the long run (Provost, 2016). Walmart, a Fortune 500 company, continues to top the list for highest profiting corporation in the world (Fortune Global 500, 2016).

There appears to be a problem with the customer service and efficiency at many Walmart Auto shops (Consumer Affairs, 2016). In order to prevent another internal work conflict from affecting their customers, I strongly recommend that Walmart HR invest in their certified technicians who work in the Auto Dept. If Walmart is going to entice customers to use their quick oil change services instead of a more popular one such as Jiffy Lube, the service must be a fast and as efficient as the other industry leaders. Even if there is a slightly lower price to pay at Walmart Auto, car owners have become finicky in regards to their vehicle maintenance and may prefer to pay a slightly higher fee on account of the less stress involved in a smooth business operation (Consumer Affairs, 2016).

Conclusion

Walmart Auto offers products and services for slightly less than all other competitors. This is Walmart’s organizational strategy resulting in a hugely successful business practice (Walmart, 2016). Walmart Auto has kept the price of general services down to a minimum however because Walmart Auto is working in a perfectly competitive market, Walmart cannot affect the price or the industry standard by much more than the “barely noticeable.”

The quick oil change industry is under the influence of oligopolies and reformed monopolies, making this industry vulnerable to macroeconomics as well as the microeconomics reflected by the way a car owner chooses to maintain his or her automobile (Schwartzberg, 2012). In a perfect competition market firms do not expect to make super profits in short time but instead modest profits after a considerable time (Markgraf, 2016). The quick oil change industry is a worthwhile business venture due to the needs and demands of people with cars, old and new (Schwartzberg, 2012).

The difference between a Jiffy Lube franchise and Walmart Auto in regards to speed and customer service can be explained by the difference in economics. A Jiffy Lube franchise can cost an entrepreneur up to $300,000 (Jiffy Lube, 2016). Their goal is a profit as soon as possible which means this owner has to do everything right (Brown, 2016). Small business owners do not have a lot of money, especially first time franchisee (Jiffy Lube, 2016). On the other hand, Walmart Auto, being adjacent to Walmart has literally millions of dollars to pay for the fixed costs and in their case relatively few variable costs associated with their quick oil change business operations (Walmart, 2016).

References

Consumer Complaints Walmart Tire and Lube, Consumer Affairs, Retrieved at:

https://www.consumeraffairs.com/automotive/walmart.htm

Brown, C. (2016). What Kind of Equipment Does an Auto Mechanic Use?

Retrieved at: http://work.chron.com/kind-equipment-auto-mechanic-use-25000.html

Economics Online. (2016). Cost of Production, Retrieved at:

http://www.economicsonline.co.uk/Business_economics/Costs.html

Global 500. (2016). Fortune, Retrieved at: http://beta.fortune.com/global500/

Lubricating Oil. (2006). Retrieved at: http://www.madehow.com/Volume-1/Lubricating-Oil.html

Markgraf, B. (1016). How Does a Market Structure Positively or Negatively Affect a Firm?

Retrieved at: http://smallbusiness.chron.com/market-structure-positively-negatively-affect-firm-78927.html

Provost, T. (2016). How Labor Charges Are Calculated, Retrieved at:

http://www.howtodothings.com/automotive/how-labor-charges-are-calculated

Schwartzberg, E. (2012). Slow Economy Has Good, Bad for Auto Repair Shops, Retrieved at:

http://www.journal-news.com/news/news/auto-repair-businesses-deal-with-recession-based-c/nR4zT/

Wilkinson, J. (2013). Variable vs. Fixed Costs, Retrieved at:

http://strategiccfo.com/variable-vs-fixed-cost/

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