Economics of General Motors

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Economics of General Motors

The role of the automotive industry in U.S economy is quite important. Given the multiplier effect, its impacts on other industries such as glass, steel and rubber, so it is considered an industry that shows some level of welfare in the economy one that has a greater share of production in manufacturing. The automobile industry provides thousands upon thousands of jobs, and in the last century the automobile has revolutionized the world, and become an indispensible aspect of the global culture. In the past, investing in the automobile industry was not considered risky; however with the bankruptcy of GM, investors might begin thinking twice about investing in this particular industry. Car manufacturers have adjusted their production and almost all vehicle-producing countries experienced a sharp drop in 2010 of output growth. The decline was particularly marked in Spain and Italy. United States, the decline of automobile consumption of durable goods and investment vehicle production businesses contributed 20 to 30% decline in production complete the second half of 2010. The current downturn in car sales appears more pronounced than the fundamentals such as revenue growth and real oil prices. Other factors could therefore have played a role. According to estimates more restrictive credit conditions could explain over 80% of the collapse of auto sales occurred in late 2008 in the United States and Canada. In fact, many consumers are unable to obtain a car loan at affordable terms have prompted buyers to delay an purchase they could have done in otherwise. It is also possible that the consumer has held onto their cars longer, the average motor vehicles recently has been better in quality.. Unfortunately, because the automobile industry is so large, much of the information about it focuses on the negative aspects. When talking about externalities, reports tend to focus on the negative instead of the positive. An externality is an impact on a party that was not directly involved in the transaction, also called a “spillover.” According to one article, these negative externalities are as follows: local and global air pollution, contribution to oil dependency, traffic congestion, and traffic accidents, among other, less serious externalities. Because air pollution affects everyone, it could be said that every single transaction between the buyers and sellers of automobiles has a negative effect on others. At least in the current social and economic climate, this negative externality has an impact on the economy because people believe they have an impact on the environment. Aside from environmental reasons, people also want cars that can get more miles per gallon because of the rising gas prices. The automobile is considered a private good, rather than a public good and it is nearly impossible for an automobile company to have a monopoly: there are many popular brands, unlike computer operating systems, for example, where Microsoft has a natural monopoly. Compare owning a car a private good with using public transit systems a public good. Automobiles are rival goods, because two people cannot drive one at the same time, and most people do not own the same car as someone else, thought there are exceptions, such as married couples and parent and child. The automobile is also an excludable product because a person must pay money to own one. No one could ever have an automobile without workers to build them. There could never be an automobile company without business savvy people to run the companies. Therefore it is inevitable that wage inequality affects the automobile industry. Some feel that the NAFTA or North American Free Trade Agreement is responsible for lowering the wages of workers in the United States, including automobile workers. One article mentions that as long as companies know they can go to Mexico, where the cost of labor is much cheaper, workers will never get the benefit of higher wages...
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