Other monetary policies that can affect the automotive industry in the U.S. include mandated price ceilings on the price of gasoline (Mankiw, 2004). These approaches, though, have not proven particularly effective in the past and created more problems than they solved. In this regard, this author also emphasizes that, "Eventually, the laws regulating the price of gasoline were repealed. Lawmakers came to understand that they were partly responsible for the many hours Americans lost waiting in line to buy gasoline. Today, when the price of crude oil changes, the price of gasoline can adjust to bring supply and demand into equilibrium" (Mankiw, p. 117).

Finally, U.S. foreign policy initiatives that use import tariffs and isolationist policies can increase the cost of the raw materials used by the automotive industry in ways that can also have a profound effect on their ability to remain competitive and profitable. According to Carlos Ghosn, CEO of Nissan Motor Co., the U.S. automotive industry is already in recession, "even if the U.S. economy is not" (quoted in Beene at p. 1). According to this author, "Ghosn said the high cost of materials such as iron ore, precious metals and aluminum represent risk for the industry, and must come down after increasing for four years" (Beene, p. 2). By contrast, Baily and his colleagues point out that, "Vehicles and parts imported into the U.S. market on average face a very low tariff, while foreign direct investment is allowed, and even encouraged" (p. 3). The Nissan CEO also emphasized, though, that the U.S. automotive industry "will not stay in recession for a long time" (quoted in Beene at p. 1). This reporter also notes that, "In 2007, 16.2 million cars and light trucks were sold in the United States, down 2.5% from the previous year" (Beene, p. 2).

Conclusion

It just makes sense that when people have more discretionary income, they will buy more "stuff" than during economic periods when they have less money. During periods of economic boom, American consumers have demonstrated time and again that they want larger and larger vehicles and have recently shown that they will even use their Hummers to pick up the kids at school or a gallon of milk from the store. Today, though, it is reasonable to assert that this type of energy extravagance is tantamount to treason since some observers suggest that the national treasure being transferred to many oil-producing countries is being used to fund terrorist activities that are being exported right back at the nation's interests at home and abroad. America's love affair with internal combustion, though, does not appear to be going anywhere soon and it is also reasonable to suggest that people in the United States will continue to drive but will seek out more cost-effective alternatives in the future. Therefore, it is clear that there is a direct relationship between the economy and the automotive industry which is cyclic and reciprocal in nature. Because the automotive industry represents such a large component of the gross domestic product, layoffs in this sector can adversely affect the larger national economy resulting in fewer dollars for everyone to spend on new cars and trucks. This direct...

Nevertheless, when times are tough, people are going to buy fewer cars and trucks because they are going to need to keep buying food, shelter and clothes. This means that during periods of economic downturn, more people will likely elect to repair their existing vehicles or opt for purchasing pre-owned vehicles rather than take the plunge with a 5-year note for a new car or truck. This also means that during periods of economic downturns, American consumers will increasingly demand more fuel-efficient vehicles and alternative fuel vehicles that can reduce the nation's growing dependence on foreign oil.
References

Baily, M.N., Farrell, D., Greenberg, E. et al. (2005, November 7). Increasing global competition and labor productivity: Lessons from the U.S. automotive industry. Federal Reserve Board. [Online]. Available: www.frbsf.org/economics/conferences/0511/4_IncreasingGlobalCompetition.pdf.

Beene, R. (2007, February 22). U.S. auto industry is already in a recession, Ghosn says. Associated Press: Autoweek. [Online]. Available: http://www.autoweek.com/apps/pbcs.dll/personalia?ID=AUTOMOTIVENEWS&category=contact.

Elasticity of demand. (2008). University of Rhode Island. [Online]. Available: http://www.uri.edu/artsci/newecn/Classes/Art/INT1/Mic/Elast/index.elast.html.

Mankiw, N.G. (2004). Principles of economics, 3rd ed.

Hewitt, B. (2007, May). Popular Mechanics. [Online]. Available: http://www.popularmechanics.com/automotive/new_cars/4215489.html.

How does the Federal Reserve affect the economy? (2008). MoneyCentral.com. [Online]. Available: http://moneycentral.msn.com/quickref/qrsearch.asp?Cat=7&Text=economy&RefType=1&QAMode=1&QID=1310.

Karlsson, S. (2008, July 6). Short- and long-term price elasticity. Stefan Karlsson: market economy. [Online]. Available: http://stefanmikarlsson.blogspot.com/2008/07/short-and-long-term-price-elasticity.html.

King, J.L. & Lyytinen, K. (2004). Automotive informatics: Information technology and enterprise transformation in the automobile industry (Abstract). Massachusetts Institute of Technology. [Online]. Available: http://web.mit.edu/sloan/osg-seminar/f03_docs/Kingabstract.doc.

Mosher, J.S. (2007). U.S. wage inequality, technological change, and decline in union power. Politics & Society, 35(2), 225-263 (Abstract). [Online]. Available: http://pas.sagepub.com/cgi/content/abstract/35/2/225.

Riley, G. (2006, September). Income elasticity of demand. Tutor2u.com. [Online]. Available:

http://tutor2u.net/economics/revision-notes/as-markets-income-elasticity-of-demand.html.

Sturgeon, T. (2000, March). Globalization and jobs in the automotive industry. Massachusetts Institute of Technology. [Online]. Available: http://ipc-lis.mit.edu/globalization/Automotive.pdf.