What Economic Indicators are Important for Investing in the Automotive Industry?

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Economic Final Project
Rajonne Mitchell
ECO 372
April 12, 2013
Judith Vandenberg

Economic Final Project
During the current economic conditions companies are facing many challenges. A way of making changes can save or preserve what the company has built over the years. The purpose of this paper will be to review what economic indicators that the automotive industry uses and includes an in-depth analysis on how team C’s forecast will affect the industry. Then go on to give an evaluation of the effect of past and current fiscal policies, monetary policies, budget deficits, or surpluses on the economy and the auto industry. Followed by a few final recommendations and strategic initiatives of what team C would take to help the auto industry become stronger and weather through the current economic conditions. The auto industry is a large market located in most countries around the globe. There are six economic indicators that affect the auto industry and other neighboring industries. The auto industry is reflected by the increase and decrease of economic activity. Therefore, the auto industry is affected by trade and real GDP. Real GDP is the total output of goods and services that adjusted periodically by inflation. The auto industry was responsible of 4.1 % of the real GDP in the 1980s and 3.5 % in 2004 (Kubarych, 2004). The significant percentage shows how the auto industry is a source to the real GDP for the United States. Another economic indicator is unemployment rate. Unemployment rate is the rate of dislocated workers who can work. The auto industry is responsible for employing more than three million workers in the United States alone (U.S. Bureau of Labor Statistics, 2010). With the responsibility of employment over many workers in the United States, the auto industry will be one of the contributing factors on the unemployment rate. When gas prices increase and decrease in economic activity the auto industry is affected in a way that creates a decrease in demand. When demand decreases, the auto industry has to lower supply. When supply is lowered the auto industry has to lay off workers to balance financial health of the industry, which creates an increase in unemployment rates. The inflation rate is the price changes on goods and products. These price changes reflect the value of the product or service. The auto industry itself is affected in a large way by inflation. Inflation creates a larger cost on manufacturing the product. To make up cost of manufacturing the product the auto industry has to increase prices of products to make up cost. The consumer is affected in a way that demand can decrease. Other than the basic economic indicators there are three other indicators as well that affects the auto industry. The three indicators are auto sales, Producer Price Index (PPI), and oil and fuel prices. Auto sales indicate the revenue acquired after production of an automobile. With the amounts of auto sales recorded, the auto industry will be able to use information accurately to forecast future supply and demand. Producer Price Index is the measurement of change of prices over a period of time by the auto industry. The changes in prices reflect on the performance levels of the auto industry. Low PPI shows the auto industry is stable and has ability to perform. High PPI shows the auto industry has effects from economic activity whether negative or positive effects. PPI change could be suggested as a way to measure the economic activity in the nation. Oil and fuel prices are economic indicators for the auto industry as well. The high cost of fuel can lower demand because inability to operate automobile with increased fuel prices. Thus the auto industry has to reflect manufacturing a vehicle to meet the demand of fuel savings. Many larger vehicles such as trucks, vans, and sport utility vehicles can decrease in demand, whereas hybrid and high mpg vehicles seem to flourish. Oil and fuel prices will be an...
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