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Auto Industry Cyclicality: Difference between revisions
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The auto industry is also known to be cyclical, as car purchases can be easily delayed when households and businesses are short of cash. Figure 2 shows that the industry typically experiences greater volatility during recessions than real GDP. On average, real motor vehicle output has fallen nearly 12 times more than real GDP during downturns.<ref>https://www2.deloitte.com/us/en/insights/economy/spotlight/automobile-impact-us-economy.html</ref> | |||
[[File:US164922 Figure2.jpg|center|thumb|540x540px|https://www2.deloitte.com/us/en/insights/economy/spotlight/automobile-impact-us-economy.html]] | |||
Factors: | |||
* '''Demand Fluctuations''': Consumer appetite for cars is directly tied to economic conditions. During times of prosperity, wallets loosen, boosting car sales. Conversely, recessions tighten belts, leading to fewer purchases and shrinking profits for automakers.<ref>https://medium.com/@falconeer7777/engines-on-a-rollercoaster-why-the-auto-industry-is-cyclical-aebad2d49ace</ref> | |||
* '''High Entry Costs''': Building cars is expensive, requiring significant capital investments in production facilities, research and development, and inventory. This inflexibility makes it difficult for automakers to quickly adjust to shifting demand, exacerbating the cycle. | |||
* '''Long Product Life Cycles''': Cars are not instant-noodles; they take months to develop and manufacture. This extended lead time means companies are at the mercy of future economic forecasts, potentially overproducing during upswings and facing oversupply during downturns. | |||
* '''Debt Burden''': To fuel growth and technological advancements, automakers often carry substantial debt. When sales plummet, servicing this debt becomes a major challenge, further hindering recovery. | |||
* '''Global Interconnectedness''': The auto industry is a tangled web of interconnected suppliers and markets. A slowdown in one region can ripple through the entire system, causing widespread disruption and amplifying the cyclical swings. | |||
== 2008 Recession == | == 2008 Recession == | ||