Economic Crisis Impact on Auto Industry’s Costs and Sales

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Economic Crisis Impact on Auto Industry’s Costs and Sales B.W. Strayer University Abstract The 2008 economic crisis negatively impacted the U.S. domestic automobile industry. GM, Chrysler and Ford reported annual operating costs and sales revenues that mimicked the movement of the overall economy from 2005-2010. Until 2009, all three companies displayed a downward trend in operating costs and sales revenues. These two aspects of automobile manufacturers are directly related to one another. As sales levels increase, inventories and production levels must also increase, resulting in higher operating costs. The opposite is true when sales levels decrease. U.S. economic stability determines the profitability…show more content…
The cost of sales group consists of the following costs: “material/commodity, freight, warranty/product recall/customer satisfaction program, direct labor/development and manufacturing of product costs, depreciation/amortization and other associated costs” (FMC, 2011). The other half of Ford’s operating expenses consist of: “indirect labor/development and manufacturing of product costs, such as advertising and sales promotion costs” (FMC, 2011). As is now evident, the “Big Three” have experienced fluctuating operating costs over the past 6 years. The general trend for these companies were similar, however 2009 proved to be the lowest point of the crisis thus far. The expenses incurred by these companies are variable. Some are based solely on production levels, which are directly affected by economic issues. The figures above do not illustrate the exact economic influencing factors, but it is evident that “in recent years, annual production volumes were heavily impacted by external economic factors, including the pace of economic growth, availability of consumer credit and cost of fuel” (FMC, 2011). It has been a matter of basic supply and demand for these companies. Consumers have demanded fewer automobiles in the past 6 years because of lack of purchasing power. Less demand means fewer vehicles were produced and subsequently released into the market, which means variable operating costs were lower than years of maximum production operations.
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