Organization Behavior

Tom’s Used Mustangs

Tom has recently opened a used car lot. Although he has very little business experience, his passion has always been for vintage automobiles. Tom has been collecting and repairing old cars since he was a teenager and has lots of technical knowledge about carburetors, shock absorbers, air conditioners, and so forth. Tom has decided to turn his hobby into a money-making venture for himself. Unfortunately, Tom knows almost nothing about advertising, taxes, social security payments for his employees, bookkeeping or other aspects of the business of selling cars. For this reason, Tom is taking a few business courses at a local community college.

The car lot has been open for a few months now. Several of Tom’s customers have told him that his asking prices are way out of line with the rest of the market-sometimes too high and sometimes too low, but never close to the going rate. Tom typically relies on a gut feeling for determining asking prices. For instance, all else the same, he thinks that red cars appear sportier and can be sold at a premium. He knows that older cars sell for less, but he doesn’t know exactly how much less. Apparently this informal scheme is not working very well.

As an alternative, Tom has secretly visited a competitor’s lot, but there are so many physical characteristics of a car that he is having trouble pinpointing a useful pricing scheme. Finding perfect matches for his cars is nearly impossible given all of the possible options on cars.

To more thoroughly understand this issue, Tom has hired you to perform a statistical analysis of asking prices for used Mustangs. Tom has already collected information from the local newspapers and other sources. The data file named MUSTANGS contains observations on 35 used Mustangs and ten different characteristics. Prepare a report for Tom on the influence of various options on asking price, and show how he should use this information to set prices on other cars...