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Automotive Industry Essay

3485 words - 14 pages

PAGE Economic Overview PAGE 1
Economic Overview: The Automotive IndustryFrank Dolezal, Lorraine Laucella, Kaimin Rivera,Barbara Robinson, and Christine SoursUniversity of PhoenixPrinciples of Macroeconomics/ ECO 372Gaminie MeepagalaMarch 31, 2007Economic Overview: The Automotive IndustryTrying to predict the future is something that is very important when it comes to any business. Even though the future is unknown, examining many different factors can help to predict what will happen in the coming years. For the automotive industry, future forecasts are very important. Many different factors go into making a forecast. Looking at factors like real GDP, unemployment rate, and the inflation rate are very important when trying to establish a forecast for the future. For the automotive industry factors like the interest rate, auto sales, and oil and fuel prices are also very important. By looking at all of these factors, as well as past and current fiscal and monetary policies, a prediction for the future can be give along with strategies that can be used to deal with any potential problems or opportunities the future may hold.American automakers are huge contributors to the Gross Domestic Production figures that are reported each year. Every automobile is made from many different parts. The individual parts do not count towards the GDP because they are only parts of another product. The finished automobile is calculated into the figure as it rolls off the assembly line and into showrooms. Automobiles, being a high priced item, and produced in such large numbers, are an important factor in the GDP. When production drops, like it has for General Motors, who just announced that sales have dropped 17% from the same period last year (Associated Press, 2008), it has an effect on the overall GDP.In comparing one year to another, such as the example above, to get an accurate measure of the GDP, adjustments must be made to get the real picture. To do this the inflation rate, which factors in higher wages, production costs, and the offering price of the commodity (the automobile), must be taken into consideration. When the inflation rate is figured into the equation, the result is the real GDP. This provides a real picture of how the actual production varied from one year to another in real dollars. Real GDP provides better information then the Gross Domestic Production figures, which are very generic.The real GDP has grown by 0.6% during the fourth quarter and 4.9% during the third quarter of 2007 (Bureau of Economic Analysis, 2008). The way the real GDP has changed from 2000 to 2007 can be seen the graph below (Bureau of Economic Analysis, 2008).The Automotive industry in the United States has been in real trouble for many years due to increased competition from foreign imports and high gasoline prices. The resulting cutbacks have caused many automakers to shut down plants and layoff thousands of workers across the country. General Motors, Ford and Delphi...

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