Automotive Industry and Macroeconomic Forces

Automotive Industry and Macroeconomic Forces

The Automotive Industry and Macroeconomic Changes

The following paper explores the automotive industry and how it's impacted by macroeconomic changes. A brief overview of the automotive industry is given. The definition of several economic indicators are presented. A graph showing the trends of the automotive industry for each of the indicators is then followed by a graph of the 18-month forecast for each of these indicators, for the automotive industry.

The Automotive Industry and Macroeconomic Forces

The following paper explores the automotive industry and macroeconomic forces. A brief overview of the automotive industry is given. The definition of several economic indicators are presented. A graph showing the trends of these indicators, in America, is then followed by a graph of the 18-month forecast for each of these indicators, for the United States.

Overview of the Automotive Industry:

The automotive industry encompasses the sales of automobiles that include: new cars, motorcycles, light trucks, commercial vehicles, aftermarket components, and new and replacement tires, around the world. The global automotive industry generates approximately $2 trillion in revenues annually, with an average growth rate of approximately 4%, over the last several years. The automobiles sector is the leading revenue source for the automotive industry, accounting for roughly 70% of the entire industry group's size ("Industry overview," 2009).

A variety of parts of the automotive industry are consolidated and extremely competitive. There are relatively high entry and exit costs to the automotive industry, which has the effects of decreasing the number of entrants into the market. This fierce globalized competition has resulted in many American and European component manufacturers realizing a decline in their earnings. This effect is primarily driven by low cost suppliers from China ("Industry overview," 2009).

Economic Indicators Definitions:

Economic Indicators -- Economic indicators are key statistics that demonstrate the direction of the economy. There are three primary types of economic indicators: leading indicators that are used to predict the economy's direction, coincident indicators that have been shown to have an associated economic activity with other indicators, and lagging indicators that only are demonstrated following the occurrence of an economic activity ("Economic indicators," 2009).

Gross Domestic Product -- A country's gross domestic product is their overall output of goods and services annually. This figure is based on market prices and excludes net income from abroad. It can be estimated in three ways. These include: expenditure basis, output basis, and income basis.

Unemployment Rate -- The unemployment rate is the percentage of an economy's workforce that are unemployed and looking for a paying job. Rising unemployment rates typically are seen as a sign of a weakening economy. Falling unemployment rates typically indicate a growing economy and increasing inflation "Unemployment rate," 2009).

Inflation Rate (CPI) -- The inflation rate (consumer price inflation) is the increase in retail pricing, as measured by the consumer price index. ("Consumer price," 2009).

Personal Income -- Personal income is defined as an individual's earnings during a certain period. This can be their salary or wages, dividends received, interest, or rental income. Personal income can even be obtained from the profits realized from passive enterprises ("Personal income," 2009).

Interest Rates -- The annual cost of debt-capital or credit, as computed by a percentage ratio, is referred to as the interest rate. In times of inflation, typically inflation rates rise. This tends to slow business activity and slow inflation ("Interest rate," 2009).

Producer Price Index -- The producer price index is the "relative measure of average change in price of a basket of representative goods and services sold by manufacturers and producers in the wholesale market" ("Producer price," 2009). It is made up of three indices: finished goods, intermediate goods, and raw or crude materials.

Trends for Economic Indicators and Prediction for 18-months:

Graph 1: Inflation Rate ("Countrywatch data," 2009; "Field listing," 2009).

Graph 2: Gross Domestic Product (U.S. Billions) ("Countrywatch," 2009; "BEA news release," 2009).

Graph 3: Unemployment Rate ("Economy," 2009; ).

Graph 4: Producer Price Index ("Economy," 2009)

Graph 5: Personal Income (Billions U.S.) ("Personal Income," n.d.; "State personal," 2009)

Graph 6: Interest Rates (30-year) ("30-year," 2009; "H.15, 2009")

How the Automotive Industry Would be Affected by These Predictions: