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Macroeconomic Impact On Domestic Automotive Part Manufacturing

2210 words - 9 pages

The United States has a long and distinguished history of automotive (auto) manufacturing. Automobile and auto-part (parts) manufacturing have historically moved hand-in-hand in the U.S. Although auto manufacturing is the second largest sector of U.S. manufacturing industries, the parts industry provides significantly more jobs. There are roughly 1.6 million jobs tied directly and indirectly to the parts industry (Wething, 2012).
In light of substantial globalization within the market, potential capital investment by parts manufacturers must be based upon a sound analysis of applicable macroeconomic determinants such as: the growth rate of Gross Domestic Product (GDP), the business cycle, ...view middle of the document...

S. economy. It is equally important to note a marked departure from that trend following the “Great Recession”. First, the auto industry as a whole experienced a higher magnitude effect from the recession than other manufacturing sectors, and the automotive market is volatile in comparison with other manufacturing industries (David Haugh, 2010). Although automobile sales have rebounded to some extent since the recession the effect on parts manufacturers has been less favorable. The auto assembly sector began to add a number of jobs in 2009-2010 increasing employment by 3.3%. In the same time period parts manufacturing increased by only 0.1%. Also, for the same time frame parts manufacturing failed to mimic the business cycle of U.S. manufacturing in general. While parts manufacturing rose and fell in similar fashion to general manufacturing for the first half of the last decade the period from 2006-2010 shows general manufacturing employment declined 17%, and parts manufacturing employment declined at a rapid 35% (Alliance for American Manufacturing, 2012). A number of variables are likely responsible for parts industry decline, and will be more thoroughly addressed throughout the remainder of this analysis.
Of the many variables impacting the auto industry a number of discretionary fiscal policy initiatives were implemented to save the industry during the recession. At the peak of the recession new auto sales plummeted by 40 percent, and banks froze access to credit for vehicle loans. In 2008 the Bush administration took action to stabilize the financial industry by implementing the Troubled Asset Relief Program (TARP). In 2009 President Obama used provisions of the act to stabilize the auto industry and avoid the economic impact of the industry’s collapse. The U.S. Treasury invested nearly $80 billion, primarily to Chrysler and General Motors, through the Automotive Industry Financing Program. As of May of 2014 the Treasury had recovered slightly more than 86 percent of the funds lent through the program (U.S. Department Of The Treasury, 2014). Although auto manufacturing was saved from the brink of collapse, parts manufacturers did not receive a corresponding benefit. During the crisis the Auto Supplier Support Program (ASSP) provided Treasury loans to suppliers to ensure they were compensated for their products and services no matter the condition of manufacturers purchasing them. The Treasury has since recovered the full amount of those loans (U.S. Department Of The Treasury, 2014). As part of their restructuring the largest domestic automakers divested themselves of their part manufacturing subsidiaries and increasingly outsource parts, or use imported parts, especially parts imported from China.

During the recession the number of parts manufacturing firms shrank, and the level of unemployment increased as well. Parts industry consolidation due to a number of economic influences reduced the number of parts suppliers by...

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