Sustainability: Automotive Industry and Ford Vehicles Essays

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International Journal of Economics and Finance

Vol. 4, No. 5; May 2012

Surviving the Global Recession and the Demand for Auto Industry in The U.S. – A Case for Ford Motor Company
Norikatsu Hiraide Department of Mathematics, Computer Science and Economics, Emporia State University 1200 Commercial St. Emporia, KS 66801, USA Tel: 620-481-1927 E-mail: nhiraide@emporia.edu

Kalyan Chakraborty (Corresponding author) School of Business, Emporia State University, 1200 Commercial Street, Box 4057, Emporia, KS 66801, USA Tel: 620-341-5913 Received: February 1, 2012 doi:10.5539/ijef.v4n5p85 E-mail: kchakrab@emporia.edu Published: May 1, 2012

Accepted: February 20, 2012

URL: http://dx.doi.org/10.5539/ijef.v4n5p85

Presented at the International Conference on Business and Economic Issues, in New Delhi, India,Dec 19-21, 2011 Abstract The world economy has been severely affected by the global recession which started from the second quarter of 2007 triggered by the financial crisis. The auto industry in the U.S. faced the most severe difficulties which threatened its survival after the recession. In the U.S. especially the “Big 3” the General Motors, Ford, and Chrysler struggled to stay in the business. This paper analyzes the impact of recent downturn on U.S. auto industry in general, and the demand of Ford vehicles in particular. The study also discusses the past and present performance of Ford Motor Company in the light of changing economic conditions at home and abroad. The empirical study uses twenty years sales data to estimate a time-series demand model for Ford vehicles.The study found that the demand for automobiles in the U.S is positively related to non-farm employment and single family housing start and negatively related to gas price and vehicle price. Keywords: Vehicle, Error-correction, Time-series, Ford, Autocorrelation JEL Code: F0, F4 1. Introduction Historically after every postwar recession automobile industry has been one of the major forces in the U.S. economic recovery. Some industry analysts believe that the automotive sector has experienced the same bubble as the housing sector and that it will never return to prosperity (Boudette and Shirouzu, 2008). The Great Recession that began during the middle of 2007 due to the collapse of subprime mortgage market ushered in the worst financial crisis in seventy five years. The U.S auto industry, because of its forward and backward linkages, consumer spending reached near death in 2009 when GM and Chrysler both took government bailouts and entered into bankruptcy. The auto sales hit the 30-year low and employed half as many people as it did in 2000 (the peak was in 2007 with 1 million) (Krisher et al. 2009). However, recent industry reports suggest automakers are hiring again and the auto sales are rising. Americans bought 10.6 million cars and trucks in 2009, 11.8 million in 2010, and 13 million in 2011 (WardsAuto, 2011). Compared to June 2009, auto industry’s employment has increased by 12 percent by the end of 2011 although small but the employment creates a ripple effect on the economy. A study by the Center for Automotive Research (CAR, 2010) estimated that for every new auto manufacturing job creates nine other jobs from part manufacturing to restaurant employees. The CAR study found the impact of $80 billion aid to GM, Chrysler, GMAC, and Chrysler Financial, saved 1.4 million jobs in 2009-10, prevented personal income loss of $76.5 billion, and generated net gain for federal government in terms of changes in transfer payments, social security receipts, and personal income taxes $28.6 billion. Many industry analysts wonder how Ford was able to overcome the recession while GM and Chrysler

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www.ccsenet.org/ijef

International Journal of Economics and Finance

Vol. 4, No. 5; May 2012

went bankrupt. What factors contributed to Ford’s survival in the aftermath of…