Discussion posts
In 2008 and 2009, the world saw a global decline in the car market. This was heavily indexed by the US car market. The traditional car giants in the US, Ford, and G.M suffered heavy losses and bankruptcy. However, in 2010, the markets started to look up driven by an overall revival in the economy. By Dec 2010, U.S. auto sales rose 11% in December, capping a year that suggests the industry is on the verge of one of the most dramatic shifts in its history (Terlep & Kell, 2011). This dramatic rise saw the emergence of new carmakers making historic strides in the auto market, which would eventually mean that 7 different carmakers would hold more than 5% of the market share each in the US. GM’s sales rose 8.5% in December and 7.2% for the full year. Ford’s increased 6.8% in December and almost 20% for the full year. Chrysler saw increases of 16.4% last month and 16.5 for 2010. Chrysler sold 1.1 million vehicles last year, hitting the target set a year ago by Chief Executive Sergio Marchionne. Meanwhile, Hyundai, which a decade ago was laughed off as a maker of cheap, small cars, said its December sales climbed 33% to 44,802. For the full year, its sales totaled 538,228, up 24%. It was the first year Hyundai’s U.S. sales exceeded 500,000 vehicles (Terlep & Kell, 2011).
The evidence of the aforementioned rise in the car markets is further evidenced by General Motors, who in 2008 announced bankruptcy due to high labor costs, short-sighted management, and global economic turmoil which forced them to seek refuge from its creditors (Anonymous, 2011). After returning to the market, General Motors created an incentive motion with the United Auto Workers Union to provide every employee with a $500- lump sum amount at the beginning followed by a $4000 over the year bonus(Anonymous, 2011). The agenda behind this seemed more of an employee retention program to help build sales and overall profits for the company. Despite company growth, GM still had to stay afloat in the market due to the existing competition with Hyundai and Volkswagen.
Given the strong positive movement in the car markets in 2010, the overall global markets seem to be on an upward trend. This indicates a booming economy where jobs will increase leading to an increase in the spending power of individuals. This creates opportunity cost for the car market leaders in the US. Stronger incentives to retain employees and increased production and sales are evidence towards this motion.
Thus, in conclusion, we strongly believe that the US car markets are most affected by economic costs as evidenced by their accounting numbers and the car company’s internal financial strategies. As we have learned from this chapter, Economic costs are still very valuable to a business, because they determine long-term strategies and provide a high-level overview of what the company is really valued at, if it changed the way it uses its resources and assets (Leonard, 2019).
Definitions of types of costs referenced in the essay –
Accounting Cost- Accounting costs are generated from the overall explicit costs of a business throughout the fiscal year and do not include the implicit costs coming from unused resources. Examples of accounting costs include lease payments, marketing budgets, and payroll. In other words, these are the real costs in manufacturing, marketing, and delivering your products.
Opportunity Cost- Opportunity cost is the loss or gain of making a decision. If you had to choose between purchasing or selling a stock, you could make immediate gains from the sale, but you lose the gains the investment could bring you in the future (Kennon, 2020)
Opportunity Cost = Total Revenue – Economic Profit
Economic Cost = Accounting Cost + Opportunity Cost
Economic costs are those values that are not listed on the ledger, and they are assumed by the business to utilize resources. The idea with implicit costs is that the business could make more by using an asset in a different, more traditional fashion. A paper company with a tree grove could yield more money from the resource if it sold lumber rather than if it harvested the trees for paper production.
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