The Economic Impact of Rising Oil Prices in Automotive Industry

The Economic Impact of Rising Oil Prices in Automotive Industry

The rise in the oil prices plays a major role in the automotive industry. “The world consumes over 82 million barrels of oil per day (BPD), with the united states taking roughly 20 million BPD” (McFarlane). Oil provides 97 percent of the transportation fuels that helps to run the cars, trucks and other vehicles in the nation’s highway (Heinberg). Thus, when the price of the oil rises, it clearly concerns the auto industry because the companies are competing with each other to meet the new demands for more fuel efficient consumer conscious at reduced price. There is no doubt that it is affecting the profit margin of the company. Moreover, increase oil price is also affecting the type of vehicles demanded by the customer and the way those vehicles are designed.

The demand of oil and the difficulties in oil refineries is the major cause for the increased oil price. Oil is used mainly for two purposes: Firstly, to make the gasoline and secondly in tire production. The gasoline prices in the US have increased dramatically during the last few years reaching averages over $ 3.00 per gallon (EIA-Energy Information Administration). Oil is the major ingredient in the production of tires. Increased in oil prices means increase in the cost to make the tires, increase in the cost to heat or cool the plant where tires are made and lastly increase in the cost to ship the tires. The tire makers are increasing the price of the tires because of the increase in the price of the oil. Both gasoline and tire production affects the auto industry as the increase in the price in gasoline and tire production affects their profit margin.

The current increase in the price of the oil began early in 1999 due to various reasons. One of the reasons is the dispute in the Middle East beside with negligible changes from