Eco-112-Gs Final Project

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Microeconomics
ECO-112-GS

FINAL PROJECT

For the past 24 years of my life I have been an employee of a company called Chrysler Financial which operated as the captive financial arm for an automobile manufacturing company known as Chrysler Group LLC (Chrysler Motors) until April of 2009. Chrysler Motors is one of the big three American automobile companies that manufactures several types of vehicles which are sold not only in the United States but also worldwide. The brands of vehicles Chrysler Motors manufactures are as follows: Chrysler, Dodge, Jeep and the recently added fourth brand for their truck line named the Ram. Aside from manufacturing vehicles, MOPAR, which is short for Motors and Parts, is the automobile parts, accessories and service arm of the Chrysler Group which produces and distributes an array of automotive parts for any Chrysler-built or Chrysler brand vehicle.

These vehicles are purchased and used daily by so many people and business alike for many different reasons. The demand for this product stems from the need of transporting people, goods and services from one place to another. Some use these vehicles as a necessity and convenience as they need to travel from place to place such as work, school, and home. Companies use vehicles to provide transportation services to their employees. For instance, Chrysler Financial, as an affiliate of Chrysler Motors, purchased a fleet of vehicles to provide their sales representatives with a company car to use when acquiring business. Another example is the state and local government purchasing a fleet of cars from Chrysler Motors for their police force.

In 2009, the economy was declining rapidly. The mortgage and housing market was collapsing, the oil and gasoline prices were climbing, and unemployment was at an all-time high which contributed to Chrysler Motor’s decrease in demand and supply of its products. As a result, the manufacturing company in the end had to file for bankruptcy and was bailed out by the government through the Trouble Asset Relief Program referred to as TARP.

Income, prices of related goods, tastes, expectations and the number of buyers are several factors that affect the demand for a product. In Chrysler’s case, the following factors affected the demand for new cars. New cars are normal goods with high income elasticity and as income increases so will the demand. However, because the economy kept falling, peoples’ jobs were lost and for those who still had a job, their hours were reduced, thus, resulting in a decrease in discretionary income. Consumer confidence as to whether the economy is going to better itself or keep declining will deter people from purchasing a new car and instead will shift their spending priorities to focus on the essential needs such as keeping a roof over their head and food on the table. The price of a new car is not cheap and not as easily affordable. Therefore, those who are not able to pay cash rely on a lending credit institution to agree on paying in installments instead. However, the problem with high interest rates on new car loans has turned customers away from purchasing a new car.

Also, the price of gasoline affects the demand for a new car. First, Chrysler missed the mark by not producing small, fuel efficient cars. Instead they put all their efforts in producing those units that made them a profit many years earlier when times were good. Second, the government created the cash for clunker program in the hopes of helping the environment and stimulating the automotive industry by removing inefficient cars with more efficient ones. The increase in demand for new cars helped the Toyota and Honda automobile industry a great deal as they were able to fulfill the consumers demand for small gas efficient cars. Chrysler was not able to capitalize on the opportunity as most of the models they produced were Jeeps, SUV’s, Minivans and trucks which were considered gas...
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