Economic Factors Affecting the General Motors
The General Motors is one of the leading automobile brands. It deals in a wide range of automobiles and for the past years, it has managed to build a large client base. The company also enjoys brand loyalty and even so, it is faced by a number of factors including economic factors
Pricing pressure is one of the factors that affect the General Motors. Excess capacity and proliferation of new models being introduced into the market mounts pressure on the company’s ability to increase the price of its products.
Additionally, there has been an incremental new capacity in major economies such as the United States by transplants and have contributed enormously to severe pricing pressure. The reduction of price in the United States has been quite evident for the past years and it affects the profitability of the automobile company.
Consumer spending trends
The company takes into consideration consumer spending trends whenever it wants to increase the prices of its products. When the demand for automobile is high, the company increases the price of its products and vice versa.
Consumer spending trends also affects vehicle unit sales. Major economies including Western Europe, North America and Japan will continue to be the main source of revenue from automobile for the next decade because of a large market.
Currency exchange rate volatility
The General Motors is also affected by currency exchange rate volatility. The US dollar can depreciate or appreciate against other currencies. For instance, in 2004, the dollar depreciated against other currencies. When this happens, it exerts margin pressure on General Motors and other auto manufacturers across the globe that has US dollar revenue.
Margin pressure therefore easily leads to low profitability because the company is not able to price its products as expected. It is also essential to note that currency exchange rate volatility leads to an extremely competitive automobile pricing environment and lead to great loses in the company.
Commodity price increases
Steel and resins are extensively used by the General Motors. Price increases in these products have occurred in the recent past and the trend is expected to be even worse in the future. There is a strong demand for the products and it leads to high costs of production and high costs of automobiles. However, if global demand pressures on the products reduce, the pricing trend is expected to be moderate as well as the price of different cars.
Production capacity is similarly one of the economic factors that affect the General Motors. If the global capacity of automobile production is bigger, the prices of different cars and trucks from the General Motors are expected to reduce. If the production capacity of cars is low, then the company can enjoy huge profits. Therefore, capacity conditions of automobiles play a great role in determining growth and profitability of the company.
Research also shows that health care expenses can affect the General Motors. With health care inflation, the company does not expect a lot of profit. However, with a favorable health care environment, the company can reap huge profits.
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