BMGT 110 Interest Rates and Automobile Sales  Essay

BMGT 110 Interest Rates and Automobile Sales  Essay

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BMGT 110 Interest Rates and Automobile Sales  Essay

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Choose one of the auto manufacturers listed below and after researching the company, answer the questions that follow.

Toyota

Volkswagen

General Motors

Hyundai/Kia

Ford

Fiat/Chrysler

In what country is the company based?

In what countries does the company manufacture motor vehicles, and why might the company have picked those countries for manufacturing operations? Does the company sell the same models across countries or do they customize models for specific countries? If they customize, why do you think they do so?

Focusing on the US market, explain how the interest rate on auto loans will influence the industry. For instance, what happens to auto sales if the interest rate goes up, and what happens when it goes down?

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One of the interesting side effects of the Covid pandemic has been the the increase in household pets, especially dogs.  The increase in pet dogs has fueled the rise in “fresh” pet food.  The Farmer’s Dog is one company that has ridden this growth market .Founded in 2014, The Farmer’s Dog delivers fresh dog food to your door.  It has more than doubled in size each year, and it really took off in the pandemic when many people bought dogs to liven up months of working from home and other distancing and isolation measures to help stem the spread of Covid-19. In 2019, the company moved its manufacturing and corporate headquarters from New York City to Nashville TN (Sichko 2021).

Fresh pet food is pre-cooked (and often pre-portioned) meals of real meat, grains and vegetables that ship directly to front doors.  It has fewer or no preservatives, and it is kept in the fridge to maintain freshness between servings  (Sprankle 2020).  As people become more conscious of their own nutrition, it has spilled over into pet food.  Fresh pet food is usually marked as “human-grade”, and made without fillers.  It comes in pre-packaged portions for ease of serving, and is conveniently shipped to homes.  Just as with the trend toward human easily prepared home-cooked meals like Hello Fresh or Blue Apron, The Farmer’s Dog and other companies offer easy, healthy meals for pets.

Despite high prices, the market for fresh dog good continues to grow. Once a small, niche market geared for pet-owners of highly digestively fragile dogs, the fresh pet food market continues to grow.  People treat pets as part of their family, even posting pictures of their “fur babies”.  As the demand for healthy and easily served dog food grows, so do the number of companies that supply a product. There are several business factors driving fresh pet food.  First, the social environment.  Influencers who promote pets on social media push pet products including fresh food.  Covid isolation increased the use of social media as the digitization of our world.  The technology environment not only offers varied ways to market and advertise the product, but it also allows for the promotion in the latest communication fronts such as Tim Tok and other social media.

Many more people know about fresh pet food today, and believe that it is healthier (although this is not always the case).  This creates a demand which suppliers are rushing to fill.ReferencesBizjournals.com. (n.d.). Retrieved May 19, 2022, from https://www.bizjournals.com/nashville/news/2021/02/24/the-farmers-dog-nashville-expansion.html The New York Times. (2020, August 6). What is Fresh Pet Food and is it actually better? The New York Times. Retrieved May 19, 2022, from https://www.nytimes.com/wirecutter/blog/best-fresh-pet-food/

Ryan response 1 – General Motors is an automotive company founded in 1908 and is headquartered out of Detroit, MIchigan. It operates manufacturing and assembly plants and distribution centres throughout the United States, Canada, and many other countries. Early in GM’s history, they added overseas operations, including Vauxhall of England, Adam Opel of Germany, and Holden of Australia in 1931. By 1941, GM was producing 44% of all automobiles in the United States. (Britannica, T)General Motors has currently ceased operations in Europe after an issue with faulty ignition switches caused their markets in Europe to struggle in 2014.

This led to GM selling off all their European markets including Vauxhall, Adam Opal, and Holden. (Britannica, T) In recent years, GM has turned to Holden for rear-drive platforms to be sold in North America. Current examples are the Chevrolet Camaro and Pontiac G8. They also opened a modular assembly plant in Gravatai, Brazil in 2000. (Wernie, B) In addition to their core brands Chevrolet, Buick, GMC, and Cadillac, GM does sell different models in different parts of the world as they own companies such as Wuling, Baojun, and Jiefang.

They would do this to extend their reach to other countries and their needs, wants, and demands. Certain models, for example, would be customized if the country normally drives their cars with the steering wheel on the right side of the car like England. Gm’s ability to establish themselves in other countries keep them as one of the top automotive companies in the world. As for auto loans, when interests rates go up, sales will likely take a hit as potential buyers may be turned away. Higher interest rates generally mean higher loan costs. Certain banks/car dealerships may run out certain “deals” (if you will) like “interest free for xx months,” or “no money down” to entice buyers to apply for auto loans or leases.

High interests rates will generally result in high vehicle prices. Given used car prices are already at record highs, this increase will only make used cars more expensive, and buyers will be forced to sit out due to affordability, or buy an older vehicle to keep payments lower. (O’Brien, S)  If there are less people applying for auto loans, then there may be a surplus of vehicles at dealerships, possibly leading to slightly cheaper prices/rates in order to sell them. In addition, production will slow down until these vehicles are sold so more can be produced and shipped. Britannica, T. Editors of Encyclopaedia (2022, January 20).

General Motors. Encyclopedia Britannica. https://www.britannica.com/topic/General-Motors-CorporationWernie, B. GM Began Its Overseas Empire by Buying Established Companies. Automotive News. http://www.autonews.com.O’Brien, S. Rising Interest Rates Means Higher Loan Costs When You Go Buy A Car. CNBC Personal Finance. http://www.cnbc.com

Nicole response 2 – The Volkswagen (VW) company is based out of Wolfsburg, Lower Saxony, Germany. VW has over 120 factories that span across Europe, North America, South America, Asia, and Africa for a list of different reasons. For example, VW chose to produce out of China because of the competitive market and its rapid growth. VW has over 14% of the car market in China. VW selected to expand in Africa in hopes to draw other auto manufacturers to Africa in effort to create a car making hub. In Europe, VW is the largest auto producer. 2/3’s of all VW employees are located in Europe making them a huge employer. VW is very popular and was responsible for 11% of new car sales in Europe March 2019 alone.

VW doesn’t build all VW models in all of their factories across multiple countries. VW does indeed customize vehicle models. A few reasons why would be difference between emissions standards, buyers taste and even the competitive market of other VW models. European countries manufacture vehicles with the steering wheel on the opposite side than American vehicles and they also have less emissions restrictions in Europe. VW never sold the Jetta GLI in Europe because they didn’t want to compete with their very high successful sales of the Golf GTI. These are a just few differences or customizations VW have with their vehicles. Interest rates in the automobile industry greatly impact sales. When interest rates are low, sales increase, and more money is generally spent on a vehicle.

Consumers are able to justify buying bigger vehicles that cost more with low interest rates. When interest rates rise up, consumers will spend less money on a vehicle and will select models lower in price to offset the cost in interest and how it impacts a monthly payment. Cars Direct. (2012, April 6). Where are Volkswagens built? A Volkswagen Car FAQ. https://www.carsdirect.com/car-buying/where-are-volkswagen-cars-built#:~:text=Volkswagen%20cars%20come%20from%20a,South%20America%2C%20Asia%20and%20Africa.https://www.volkswagenag.com/en/news/stories/2019/05/volkswagen-votes-for-europe-he-fact-check.htmlGrinys, A. (n.d.). Same Models but Slightly different in Certain Countries. https://dyler.com/posts/325/same-models-but-slightly-different-in-certain-countriesSokolovski, M. (2021, October 13) 5 Cool Volkswagen Models We Wish Were Available in the United States (5 that Europe Never Got). https://www.hotcars.com/volkswagen-models-no-available-in-the-states-some-europe-never-got/Seabury, C. (2022, May 13). How Interest Rates Affect the U.S Markets. https://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp

Brian response 3 – Ford is an American based car company that originates out of Detroit Michigan where their company head quarters still resides to this day as well a certain vehicle productions take place. Having a vast line up of cars, trucks, and even some new electric vehicles in their fleet line up of cars, Ford has nine new and existing plants throughout the United States (six), Canada (one), and Mexico (two) just to handle the production needs in our economic regions. Being a global company with high demand for vehicles all over Europe, Ford has over twenty-five European assembly plants, and that not even including all the support factories they have for steel, engines, and accessories for their vehicles.

Being that Europe is known for higher gas prices, less parking, and narrow streets ford and many other auto makers have focused on smaller cars with i4 turbo engines rather than v6 and v8 in America. “The price of gasoline and diesel is much higher in Europe. This means that people seek to buy highly fuel-efficient vehicles – which of course tend to be much smaller. In fact, with fuel efficiency, the smaller, the better.” (Spray, 2021).

As our country continues to deal with record high inflation, banks have no option but to raise interest rates higher and higher in efforts to bring down inflation. What does this mean for car buyers? Well in short with the used car market sky rocketing due to microchip shortages, used car prices are also on the rise as supply is low and demand steady climbing, on top of all that we are facing higher interest rates making the monthly cost and over all money you are paying to the bank higher than average, “Buyers will be forced to sit out due to affordability or buy an older vehicle to keep payments within a digestible range.” (O’Brien,2022).O’Brien, Sarah 2022Rising interest rates mean higher loan costs when you go to buy a car.

Monthly payments already average $650https://www.cnbc.com/2022/05/05/rising-interest-rates-mean-higher-borrowing-costs-to-buy-a-car.htmlKimber Creek Ford 2019Where are Ford vehicles made?https://www.kimbercreekford.com/blog/ford-plant-locations/Spray, Aaron 20218 Reasons Why Europeans Like Small Carshttps://www.hotcars.com/why-europeans-like-small-cars/#:~:text=The%20price%20of%20gasoline%20and,%2C%20the%20smaller%2C%20the%20better.

Mauricio response 4 – 1. In what country is the company based?Toyota is headquartered in Aichi, Japan.2. In what countries does the company manufacture motor vehicles, and why might the company have picked those countries for manufacturing operations?Toyota manufactures their motor vehicles in, Argentina, Bangladesh, Brazil,Canada,China,Columbia,Czech Republic,France,India,Indonesia,Malaysia,Mexico,Pakistan,Philippine,Poland,Portugal,South .

Africa,Taiwan,Thailand,Turkey,UK,U.S.A.,Venezuela, VietnamToyota chooses these countries as strategic locations to provide vehicles to consumers worldwide as it is cheaper to create and sell in that specific location than importing and exporting from a single location. Some of these locations are tasked to manufacture not only vehicles but engines, transmissions, and other parts for Toyota so they save money producing and manufacturing their own parts.3.

Does the company sell the same models across countries or do they customize models for specific countries? If they customize, why do you think they do so? Toyota sells the same model of vehicles but they are customized in name and specifications depending on that country’s Department of Transportation laws. An example of this is that Japan has different motor vehicle safety regulations as opposed to the U.S.A. Also, a specific vehicle can be sold with a manual transmission in Japan but only automatics were sold in the U.S.A.

They do this because manuals can have a higher sell point in Japan as opposed to the U.S.A. Companies need to sell where there is a high market and demand for certain vehicles they sell.4. Focusing on the US market, explain how the interest rate on auto loans will influence the industry. For instance, what happens to auto sales if the interest rate goes up, and what happens when it goes down the interest rates on auto loans affect the industry as a whole and affect consumers.

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If the interest rates on auto loans are high then consumers are likely to not buy and the industry profits go down making it harder to keep up with their debt incurred. If the interest rates are down then consumers will buy vehicles, industry profitability will go up, and this makes the industry pay off its debt. References: Toyota Motor Corporation global website | 75 years of Toyota | Overseas production | List of overseas manufacturing companies and their mother plants. (n.d.). Toyota Motor Corporation Official Global Website. https://www.toyota global.com/company/history_of_toyota/75years/data/automotive_business/productionGlobalization and Business. (2022). https://learn.umgc.edu/d2l/le/content/686420/viewContent/26559026Interest rates and automobile sales. (2022). Management Study Guide – Courses for Students, Professionals & Faculty Members. https://www.managementstudyguide.com/interest-rates-and-automobile-sales.htm.

BMGT 110 Interest Rates and Automobile Sales  Essay

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