ECONOMIC IMPACTS ON THE UNITED STATES AUTO INDUSTRY

Topics: General Motors, Automotive industry, United States Pages: 3 (601 words) Published: April 9, 2014
ECONOMIC IMPACTS ON THE UNITED STATES AUTO INDUSTRY

In late 2008 through 2009, the automobile industry faced an economic crisis. By September of 2008, the industry was rapidly decreasing production, cutting nearly 120,000 jobs per month, and closing large operations across the United States (McAlinden, Dzicczek, Menk, & Cregger, 2010). The 2008 – 2009 recession and financial crisis severely impacted the industry’s health, ultimately leading to its national distress. Additionally, one of the major factors of production – labor – proved to also be an extreme burden during this time. In this assignment, we will explore how each of these inputs, in relation to supply, managed to cripple two of the United States Big Three1 automobile firms: Chrysler and General Motors. Labor

Referring to the economic circular flow, households and firms are interdependent. Households not only create demand for a product or service, but they also supply the labor for a firm’s production. In turn, firms supply the product and wages back into households. In order to compete in a capitalist economy, certis peribus, automotive companies must strive to keep their prices lower than competitors. Major production costs, such as labor, should be kept at a minimum achieve their goal of maximizing profit. However, worker benefits forced by unions, such as the UAW2, make it difficult for the Big Three to remain competitive. Foreign based automakers have the advantage of paying lower wages, while some have replaced workers 1

Big Three – Chrysler, Ford, and General Motors are commonly referred to as the Big Three. UAW – United Automobile Workers; A union representing workers in the auto industry as well as aircraft manufacture and other industries in the United States.

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ECONOMIC IMPACTS ON THE UNITED STATES AUTO INDUSTRY

completely with machines. If the UAW were to succeed in achieving higher worker compensation, production costs would rise concurrently with product costs,...
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