The US Auto Economy

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Table of Contents

Introduction
Reasons for Government Involvement in the Economy
References

Introduction

The invention of Auto industry in US started in the twentieth century. Three big companies controlled the market activities that involved selling and buying of cars and other related services. Henry Ford produced his first model Ford T, which marked a revolutionary journey of the industry (York, 2010). Later on, other two companies Chrysler and General Motors came into action with their models.

They dominated the industry until 1980s when other companies started engaging in the industry. This changed the oligopoly status of the market to a very competitive market. Currently, there is competition from national and international bodies that makes it difficult for all the companies to maximize their profit margins.

On the other hand, the US government is experiencing a major economic setback. This paper will address important reasons for government participation in controlling the economy and merging as the best decision for the big three auto industries.

Reasons for Government Involvement in the Economy

Pollution control

Government involvement in business has many advantages to both business operators and government itself. First, auto industry manufactures and sells vehicles to consumers in different parts of the world. It is important for any government to monitor the types of vehicles that the companies are manufacturing (Michaels, 2011). This is because most vehicles use petrol, diesel and other forms of energy to operate.

Some sources of energy cause pollution to environment while others are environmental friendly. For example, vehicles that use energy from wind, water and thermal gas do not emit harmful gas in the environment. On the other hand, energy sources like crude oil can pollute environment at a high rate.

Therefore, vehicles that use petrol and diesel emit harmful gases like carbon dioxide and carbon monoxide to the environment. These gases pollute air, water and soil. For that case, the government should intervene in controlling pollution that may come from vehicles. This means that they should encourage motor industries to manufacture vehicles that use energy sources that are friendly to environment.

Control of Harmful Competition

Competition in business can be in two different points. First, healthy competition is a type of competition where companies are able to compete favorably providing better services to consumers. The second type of competition is unhealthy competition.

This is where well-off companies dominate over small companies thus taking advantage to monopolize the market. The big three companies have faced unfavorable competition from foreign vehicle producers. This has made it almost impossible for them to sell their vehicle as before. The government should step in to control the importation of foreign goods to prevent depreciation of its currency.

Merging of companies may have many technical issues. The major company may have selfish motives for joining the other company. The government comes in to provide terms and conditions that companies should observe when merging. This is quite important since it will provide the basis on which merging can take place.

Enacting a Legal and Social Framework

Buyers and sellers need to get their goods with guarantee that goods bought are of good quality. The US government controls all motor vehicles that get in and out of the country.

They keep records of manufactured cars in the country and those imported from other countries. This helps consumers to get valuable information on their desired vehicles (York, 2010). The buyers also require knowing if the vehicles that are sold by specific companies belong to them.

National Defense

National defense is a critical issue that makes the government interfere with the operations of the economic markets. All people who buy and use vehicles need protection from unauthorized dealers.

Some dealers may duplicate knowledge and skills to disadvantage their counterpart companies. The government should be available to oversee whether the merging companies have same interests or one of them may have a different idea (Michaels, 2011).

Government monetary policies

The US government has the critical role for providing economic conditions that the private and public enterprises can function effectively. The most important role is to avail an acceptable currency, which eliminates barriers to trade. Additionally it should be able to maintain the quality of its currency using policies, which prevent currency inflation that may cause an overall increment of vehicles at the market.

History reveals that price increase is dependent on the rate of inflation together with the level of unemployment in the nation. It is the government to oversee that merging of the companies should be in the view of providing extra employment opportunities to citizen. If it may render some of the citizens unemployed and then make it unnecessary for the companies to merge (Rubenstein, 2001).

Rationale for government involvement market place

The government may decide to involve in business activities majorly for changing allocation of resources to achieve improved social and economic welfare. All government organizations through political persuasion can intervene in the economy to affect scarce resources within competing firms.

Some of the major reasons for government intervention in business organizations include correcting a failure on the market, achieving equal distribution of wealth and income to different people and improving economic performance.

In this case, the market economy has depreciated and thus it requires a quick action to save the auto industry. The three companies have really failed to make profits due to the invasion of international and national companies, which are causing unfavorable competition to their vehicles.

Complexities for a self-expanding company

Merging of companies may have up and downs. It is possible for the merged companies to face major setbacks and decide to pull out of the merger to expand as an individual company. The company can face several complexities in its daily operation. First, the shareholders may have a positive attitude towards the merger. This will evoke negative sentiments from them together with workers who may be against the merger.

Approaching the market through innovative means will be important and it will require the company to employ or utilize its staff for providing innovations through information and technology.

Convergence forces

There are different forces that determine the management desires and shareholders desires. For instance, the shareholder will be requiring the company’s performance to be high.

This includes high profits organizational structures among others. the management on the other hand, will also need to include management strategies that are geared towards better performance of the company (Cooney &Yacobucci, 2007). It is for the interest of the shareholders and the management team to ensure that the company gains considerable profits to maintain its market value.

Goals for the company

The management team is considering majorly the investors interest. This is because if the shareholders withdraw their investment the company will have a negative impact on the market. Therefore, it has to be careful while making decisions at the expense of the shareholders.

On the other hand, it may work towards improving its general income. Once the investors identify the performance of a company, they will invest without any fear. It is a two-way traffic.

References

Cooney, S. &Yacobucci, B. (2007). U.S. automotive industry: policy overview and recent history. New York: Nova Science Publishers.

Michaels, R. (2011). Transactions and strategies: Economics for management. Upper Saddle River, NJ: Cengage.

Rubenstein, J. (2001). Making and selling cars: innovation and change in the U.S. automotive industry. London: John Hopkins University Press.

York, M. (2010). Henry Ford: manufacturing mogul. New York: ABDO Publishing.

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