Economic Indicators
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Economic Indicators
The Big Three automakers (General Motors, Ford Motors, and Chrysler Motors) went from a domestic auto market accountability of 70% of sales in 1998, to an all time low of 58.6% in 2004. The past four years were tough for the automakers. Declining market share and high inventories have forced the automakers to reduce assemblies in North America by 9.0% during the first half of 2005. “The automakers are currently struggling with an adverse operating environment due to the protracted price wars, and some serious cost competitive issues like increasing legacy costs, and frequent discords with the unions”. Rising health care has affected the sales of Ford vehicles by an average of $1,200 dollars per unit; proactive price wars have also taken its toll on Ford vehicles with an average incentive of $3,795 dollars (Venkatakrishnan, 2005, 1-2).
The month of March was no exception to the declining trend of Ford Motor sales. Ford Motors reported a decline in sales of 4.6% from 2005, which equates to 291,146 lost sales. Not all the news were negative within the diversity of Fords product line, sales of Fords “F” series pickups rose by 4.5%, while sales from the Ford Explorer fell 31%, the Expedition lost sales by 13.4%, with the biggest drop in sales going to the Excursion line at 82.9% (Wong, 2006, 1-2).
In order to figure out the GDP of an economy, “Gross Domestic Product (GDP) is the total market value of the final products and services produced in an economy in a one year period” (Colander), the country will have to add up all the output for that year and multiply the items by the price of the selling items. For example, cars can not be added to fruits by amounts, but the price related to those items added together will give one the output which is the GDP. The total output or GDP of Ford Motors Company will be how many automobiles, trucks, SUVs, etc., are all added only at the end of the year by using the price value. GDP only measures the final product sold like the cars, trucks, etc. Therefore, the tires, wheels, and all other elements that were intermediate in the making of these automobiles are not part of GDP. GDP can also be added-value if the goods and services are resold for a greater value. Ford Motors produced their vehicles planning to make a profit, so the final good would sell for more than its original value. Another way to understand the value-added approach, happens when the dealer takes trade ins from other customers, then the dealer needs to add value to the car and pay as little as possible for the trade in, in order to, make a bigger profit. For example, Ford dealers will buy a trade in at $5,000 and will turn around and sell at the same trade in for $6,000.
Ford Motors is expected to have a decrease in the yearly sales from 18 million to 17.5 million, which will produce fewer cars and lower GDP. Ford Motors production is down from prior years and is continuing to close down factories, the reason of downsizing their inventory, is mainly because the company would not sell every automobile they built. The GDP for the company would go down overall; however, because of the downsizing of the company and the proactive planning in producing fewer automobiles the company still is part of the competition.
Although domestic auto sales declined for Ford Motors, Fords European markets hold appreciated sale stability. Ford of Europe reported an essentially flat sales graph when compared with their western competitors. Ford of Europe also reports that the overall market conditions remained tough as the net price of cars goes down and the commodity prices rise. Ford Europe plans to manufacture approximately 86,000 new S-MAX and Galaxy vans in their Genk plant this year (Blenkinsop). With all the economic turmoil personal income will be a factor to watch for automotive economist.
Ford Motor Company is dealing with an upset in automotive sales, falling to an all time low of 58.6% in 2004. Although personal income indexes show an increase of .5% in December of 2005, Ford sales are low. Personal income measures the total income an individual receives. This includes income received directly, such as doing productive work. Along with directly earned income, personal income includes income an individual ears indirectly. Indirectly earned income is comprised of government payments such as Social Security, welfare, and food stamps. Personal income can be calculated by using the following equation: PI=NI + transfer payments from government + net non-business interest income – corporate earnings – social security taxes
According to personal income index numbers released March 28, 2006 by the Bureau of Economic Analysis US Department of Commerce, in 1998 personal income was $26.8 billion and in 2005 was $34.5 billion (Per Capita Personal Income by State). On April 05, 2006 Bureau of Economics released a revised index showing the difference in personal income for December 2005, with an increase of $55.2 billion, and February 2006, with an increase of $31.5 billion (New Release: Personal Income Outlays). The Bureau of Economic Analysis has indicated an increase in personal income, but didnt mention the increase will not affect the sales trends for the automotive industry.
Many incentives were instituted to attract consumers and boost sales, but fell short. If personal income is increasing monthly then consumers are able to afford automobiles. This, in fact, is false; the oil industrys increase in prices had a greater affect on sales because consumers realize a vehicle, like an Expedition, will cost more to drive than a fuel efficient car.
The inflation in the United States rose 4.7 percent in September, the highest since 1991, and consumer price rose 0.4 percent in March led by energy cost. The inflation surge was led by higher gasoline price, which rose by 3.6 percent. Yet U.S is still remained resilient. The inflation could cause in raising the interest rate and price of gold. The G-7 finance officials had a meeting on to address the issues of increase in price of oil. They fear the risk of global imbalance of global economy. To prevent a global imbalance, the G-7 agreed to work together to resist the protectionism and promote liberalization of global trade and investment. Some of the economist analysts finally come to notice that increase in price of oil is the sign of potential of inflation. Inflation is the measure of a downward change in value of dollars. This inflation fears everybody in the world. With this inflation also cause Ford and General Motor to cut down thousands of jobs. This is due to higher costs for labor, insurance and fuel. The price of oil has increase to $75 a barrel. Despite all the increasing in the oil, the real reason behind this inflation