Topics: Automotive industry, Economics, Macroeconomics Pages: 26 (4671 words) Published: October 8, 2014

Macroeconomics of Expanding Automotive Parts Manufacturing
Macroeconomic Paper
By Martin M Coronel

ECON545: Business Economic
Professor: Hamid Noorani
April 15th, 2014

Figure 1: Automobile Parts and Industry (MEMA, 2013)

When we look at the “big picture” in terms of economy, we consider how the economy performs as a whole. In Macroeconomics, we zoom into topics that consider economic growth, national total production, inflation, changes in employment patterns, and demographics as economic principles to support a business decision. This macroeconomic analysis provides an outlook to support a business decision of expanding a small auto parts manufacturing plant. The evaluation for the expansion will include key determinants that influence current economic conditions such as aggregate supply and demand, GDP growth rate, business cycle characteristics, unemployment level, inflation patterns, interest rates, international trends and demographic variables. According to the Automotive Aftermarket Industry Association (AAIA, 2013), “for years, auto-parts retailers and distributors have benefited from economic, technological and consumer trends that have kept cars on the road longer and heightened demand for parts and service. These favorable market dynamics were supposed to be temporary. The thought was that eventually, the economy and job markets would improve so more people would buy new cars, fewer would need to replace worn-out parts, and auto-parts retailers' business would decline. That hasn't happened — at least the last part. While the economy and job markets have slowly improved, and there has been a rise in new car sales in the U.S., auto-parts companies continue to churn out solid financial returns. The two biggest players by market cap, AutoZone and O’Reilly Automotive have a long record of double-digit earnings growth.” This macroeconomic analysis will support the feedback requested by a small automotive parts manufacturing entrepreneur that would like to make an informed decision for expanding his business. The advice will confirm if expanding his current operation is optimal, including research on how to go about the expanding approach. Relevant Economic Principles

According to a 2013 economic impact study of the motor vehicle parts manufacturing industry on the U.S conducted by the Motor & Equipment Manufacturers Association (MEMA, 2013), “the past five years have been incredibly tumultuous for the United States motor vehicle industry. The great recession hit the industry particularly hard. Consumer spending reduced sharply and credit availability dried up, which brought a sharp reduction in vehicle purchases. A steep rise in U.S. unemployment helped drive a reduction in annual miles traveled, which undercut potential growth in the aftermarket from consumers who were choosing to keep and maintain older vehicles and not replace them. The credit crunch hit the business community as well, and as consumption dropped, so did business investment, cutting into the sales within the heavy duty vehicle market as well.” It is important to mention that the motor vehicle industry “aided by a slow but steadily recovering economy, has seen a strong rebound from the worst of the recession. U.S. vehicle production in 2012 approached 2007 levels. Supporting this economic rebound, we find the original equipment manufacturers and aftermarket auto part industry” (AAIM, 2013). In 2012, the auto parts manufacturing industry continuous improving production levels when compared to previous years. The Bureau of Labor Statistics (BLS) reported that “original equipment manufacturers (OEM) and the aftermarket parts industry during 2013 employed over 734,000 people across the country.” In essence, the basis to this analysis is to identify the macroeconomic factors that will support estimated projections of demand of automobile parts in the United States, including International market variables. We...

References: Abbas, Z. (2013). How will a tightened monetary policy impact the performance of auto companies. Retrieved from EBSCO
Automotive Aftermarket Industry Association (AAIA)
Cariga, V. (2014). Auto parts firms maintain speed even as market shifts. Investors Business Daily. Jan-Mar 2014
Center for Automotive Research
Federal Reserve Education. (2014). Monetary Policy Basics. Retrieved from http://www.federalreserveeducation.org
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Hamrick, S (2013). Automobile part and supply industry: market research report, statistics and analysis. Retrieved from Auto parts and supply on reportlinker
Hammel, G
IHS (2013, January). The economic impact of the motor vehicle parts manufacturing industry on the united states. Retrieved from EBSCO
Motor & Equipment Manufacturers Association (MEMA)
Office of Transportation and Machinery (OTM). (2011). On the road: U.S. automotive parts industry annual assessment. Internal Trade administration
Office of Transportation and Machinery (OTM)
Samilton, T. (2012, March). Auto Parts suppliers hiring as fast as they can. National Public Radio, March 2012.
Thompson, M
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