June 20, 2013
Auto Industry: Moving Forward
June 20, 2013
When it comes to supply and demand of the automotive industry as well as the profits resulting from the sector are clearly impacting by then macroeconomic policies. The industry’s history demonstrates the developments it follows in the business cycle and how economic indicators have impacted the performance of the industry over the years. With real GDP, interest rates, the measure of production, automotive sales and inflation and unemployment seem to be some of the most persuasive utensils that can be used to assess the state of the automotive industry.
Interest rates are playing a major role when it comes to the determinant of the performance of an industry. Consumers, interest rates represent the available funds they are willing to borrow to satisfy today’s needs when it comes to the cost of living. For businesses interest rates represent the cost of borrowing money to invest in the growth of the company.
Many factors affect the performance of automotive industry and not just the automotive industry but all industries, the automotive industry makes up a portion of real GDP, which in turn can impact the cycle of the economy, because the automotive industry is obviously impacted by the macroeconomic policy and auto production along with sales rates in relation to interest rates, real GDP, inflation and unemployment seem to make this evident.
With the auto companies expanding this will lead to more product needed from local suppliers, there will be more supplier openings and or expansions. The auto industry truly is drive the economy in several different directions and one major direction is up.
Car Sales Just Might Save The Economy
By Lacey Plache August 8, 2011
July car sales, coupled with recent growth in jobs, constitute a direct challenge to growing concerns that the auto industry’s ability to regain sales momentum as production recovers is in jeopardy. Such concerns have surfaced recently as a result of declining consumer confidence and weak economic conditions. However, July car sales increased to 12.2 million units on a seasonally adjusted annualized basis (SAAR), after two months in which sales sharply fell in response to shortages and higher prices. Friday’s jobs report revealed that 117,000 nonfarm jobs were added to the economy in July, contributing positive economic news to what has become an increasingly dismal economic landscape. The report not only beat consensus expectations of 75,000 for July, but also revised June’s very low 18,000 to 46,000. Together, these two data releases indicate at least one path that could take us out of the current soft economic patch and return the auto industry to its earlier 2011 momentum, namely a “virtuous cycle” in which auto sales spur growth in jobs which then spurs more growth in auto sales.
Headed In The Right Direction
The July car sales increase marks yet another reversal in the path sales have followed this year. The SAAR averaged 13.0 million units during January to April, but fell to 11.8 million in May and further still to 11.4 million in June, reflecting aftershocks of the March 2011 Japanese earthquake. After the earthquake, production disruptions led to supply issues, which in turn resulted in higher car prices. Higher prices naturally led to reductions in sales. As production revives, inventories and prices should also improve, followed by improvement in sales. July sales showed the beginning of this sequence. Of course, based on the SAAR, July sales were still weaker than pre-earthquake sales, but given that the industry is not yet back to full production, expecting a full recovery of sales would be premature at this point. Rather, the encouraging implication of the July results is that the sales recovery from the earthquake does