Current Macroeconomic Situation in US and Prospects for Automotive Sector

The U.S. automobile industry is large and dynamic sector contributing significantly to the nation’s output and employment. Auto industry provides the basis for a mass of related service and support industries. The industry is highly volatile and sensitive to global and domestic economic changes. During the 1960’s & 1970’s the big three accounted for 90% of automobiles purchased in U.S. However, since 1980’s foreign manufacturers entered the U.S market. So, the industry faced intensive competition from Japan, Germany & other countries. During 1998’s availability of foreign substitutes flooded the U.S automotive industry. Foreign producers, particularly Japanese, provided solitary competition to The U.S. oligopoly. Besides, the demand for automotives are highly found to be fickle and sensitive to macroeconomic conditions like, income, unemployment, interest rate etc. Regarding cost of production, The U.S automotive firms are characterized by huge fixed and variable costs. The variable cost in terms of wages and other benefits are, because most of the automobile firms like GM, Ford, and Chrysler have long been unionized. The United Auto Workers (UAW) ensures higher wages and generous benefits in the form of health insurance and Medicare for automotive industry workers than in any other non unionized firm. Eventually, UAW contracts with the auto firms lead to mounting variable and fixed cost for the The U.S auto makers. Further, the Federal Standards regarding safety, fuel emission and mileage increases the cost of production. Thus, The U.S auto motive industries suffer with huge fixed and variable cost of production.

Current Macro Economic condition in the Automotive Industry:

The National Bureau of Economic Research (NBER) officially announced recession in US at