Big-Auto-Drive

Big Auto DriveECON/GM 561University of PhoenixBig Auto DriveAbstract

The automotive industry is a major force in the global market; it produces more than 60 million cars every year (Industry Week Magazine). Doe to the present financial crisis, the automotive industry sees their sales growth have reduced drastically over the years. Two major contributing factors are new entry into the market and high unemployment rates in countries such as Canada. With the never-ending global economic crisis, emphasis has been laid for stronger economic policies to improve standards of living from the slowdown in productivity growth. Predicting economic futures accurately is essential to ensure that individual organizations choose the best business alternatives.

Introduction

Big Drive Auto is a dealership company in Canada; they sell various cars and trucks from different manufacturers around the world. The company also provides a full maintenance services, sells parts for repairs and does a significant business in motor oil, coolant, and replacement tires. Management of Big Drive Auto is also scanning the macroeconomic environment for signals that will help it better plan its business (UOPM, 2012). The objective of this paper is to evaluate macroeconomic measures of Canada against which Big Drive must use to compare its own sales and price data. The paper will also evaluate any relationship between the two, and graphs will be used to explain the existing relationships. Suggestions will be made about how Big Drive Auto could use these relationships to better plan its operations (UOPM, 2012).

Evaluating Market Size of Canada

The Automotive Industry in Canada is a major contributor of the country’s manufacturing GDP (12%) and mark up of 24 % of manufacturing trade (Canada’s Automotive Industry, 2007). As the third major exporter of automotive products in the world, the country produces both light and heavy duty vehicles and also manufactures wide varieties of automotive parts and systems. The industry can also boast of an advance vehicle network system capable of supplying replacement parts and accessories and a top of the class distribution system (Canada’s Automotive Industry, 2003). The industry is also integrated into NAFTA, giving it free trade among the other two members the United States and Mexico. Canada is globally competitive with positive trade balance, the automobile industry is a major contributor to the Canadian economy, employing over half a million people (Canada’s Automotive Industry, 2003). This makes Canada a lucrative market for Big Auto Drive to conduct it business operations. The table below show the number of cars produces in Canada in 2011.

Production by source Total number of Automobile produced

Car 801,039

Light truck 445,868

Medium/Heavy Load truck 63,811

Total 1,301,718

Source: Ward’s AutoInfoBank Economic Trends

Economic growth can be measured as (a) an increase in real GDP over time or (b) an increase in real GDP per capita over time (McConnell & Brue, 2004). The Global meltdown has influenced the Automotive Industry in Canada in the last couple of years. The sales of new automobiles dropped significantly over the years creating loss in total revenues for manufacturers and dealers as well. Economic growth in Canada has been restrained by large drops in auto assemblies. The recent volatility of auto production in Canada is in marked contrast with the United States. Auto output in Canada tumbled 23% in December, about two-thirds due to customers changing car models and one-third to weaker sales in the United States (Statistics Canada, 2010).

Competitive Market

Foreign competition held down wages and price hikes in the automobiles industries, because it falls under oligopoly market structure, anti-competitive cooperation may exist is this market. Developing a strong advertising campaign is an important part of the competition and will give Big Auto Drive a competitive edge over its competitors.

Macroeconomic Measures of Canada GDP against Big Drive Auto

Coordination of macroeconomic policies is a frequent issue for the leading industrial economies. This is vital, because even when country like Canada has experienced remarkable economic growth over time, high unemployment or inflation has sometimes been a problem. The primary measure of the economy’s performance is its annual total output of goods and services or, as it is called, its aggregate output also known as GDP (McConnell & Brue, 2004).

The GDP of Canada and Big Drive Auto business activities have a correlation. The Canadian GDP has a steady growth from 1998 to 2007; the graph bellowing will illustrate this information.

When comparing Big Auto Drive sales of vehicle during the same period to Canadian GDP, there is an increase in the number of automobile sold during the same time period. The graph below illustrates the sales of vehicle for the company.

Sales increase from 139 units sold in 1998 to 163 in 2007 correlates to the Canadian GDP during the same 10 year period. Although there has been a total increase during this period, there was a decline in units sold from 1999 to 2001 and a very small yearly decrease from 2003 to 2006. Big Drive Auto should price the products based on the current average prices of competing products.

Whilst Canada experienced GDP growth from 1998 to 2007, the country experienced a change in annual GDP during the period from 1998 to 2007, which correlates closely with the BDA vehicle price index. As a result of the fluctuation in vehicle price index and the annual GDP change, it can be assumed that this is the reason for the BDA decline in vehicle sales during the two periods between 1998 and 2007. The graph below explains:

Economists believe that the immediate causes of cyclical changes in the level of real output is the changes in the level of total spending (McConnell and Brue, 2004). If the country’s GDP decreases, it causes the unemployment rate to increase. From the GDP based on purchasing-power-parity (PPP), there is slight rise and fall, which is contrary to the Canadian GDP that is steadily rising from 1998 to 2007. To measure economic growth in Canada, an increase in real GDP and the real GDP per capital must occur over some time period (McConnell & Brue, 2004). Growth in the auto industry would therefore result in an increase in the real GDP over time. Consumers in Canada will purchase less with the increase in incomes coming from the increasing in GDP. With an effective market strategy, the company was able to sell more automobiles to its customers from 1998 and 2007.

Inflation

The current state of the Canadian economy requires businesses to do extensive research before setting prices for their products. When evaluating the macroeconomic measures of Canada and the company’s outputs and prices, the following factors must be considered: the Consumer Price Index can be used to measure the company’s prices as compare to Canada, so that the company can sell its products at that level where it will generate economic profits.

Since 2000, Canada CPI was stable; it was after the start of the economic crisis in 2007, that the index starts to fluctuate. In correlation with the core consumer price index, the vehicle price index is another source that will provide adequate information on pricing for the sale of the various automobile the company has in stock. Comparable to the core consumer price index, automobile prices were stable over the past decade. Decreases between 2000, and 2003, were followed by very mild increases.

The graph below depicts the core consumer price index for 2000 to 2010.

The rate of inflation, interest rates, and unemployment rates are determinants of the economic climate in Canada and play a role in pricing of consumer products. Keeping up with economic indicators will be influential in planning for the company’s success in the long run.

Conclusion

As the global economy toys with a double recession, austerity measures bites hard, the impact is on the consumer, managing business operation through this financial meltdown will help the company meet its goals. Demand for car and trucks have a tendency to to be interest rate sensitive, making the automobile industry one of the leading indicators of business cycles (www.forex-brokerage-firms.com).To earned economic profits and have a competitive edge in the industry, the company must develop a strategic plan that will make the company stand out and position itself for any of the possible economic business cycles. Big Auto Drive must implement a strategic control plan that will help track their strategies as it is being implemented, this will help the company detect various problems or changes in its underlying premises, and make necessary adjustments (Pearce and Robinson, 2011).

References:

Gerber, J. (2008). International Economics (4th ed.). Boston: Pearson.

McConnell, C. R. & Brue, S. L. (2005). Economics: Principles, problems, and policies. New York: McGraw Hill/Irwin

University of Phoenix material Big Auto Drive (2012)

http://www.ic.gc.ca/eic/site/auto-auto.nsf/eng/am02360.html

http://www.academon.com/Essay-Competition-in-the-Automobile-Industry/27288

https://www.bea.gov/scb/account_articles/international/1097srv/maintext.htm

http://www.statcan.gc.ca/daily-quotidien/080522/dq080522c-eng.htm