How Macro-Economic Conditions Affect Ford

Introduction

The automotive industry has become a very important industrial sector in the world economy. It makes 60 million cars and trucks a year, and they are responsible for almost half of the world's consumption of oil. The industry employs 4 million people directly, and many more indirectly. (Industry Week, 2007). The global automobile industry has a major impact on the global economy and people’s life. If one were to regard the global automobile industry as a country, its scale equal to the world's sixth largest economy.

In this report, I will demonstrate how several macroeconomic key concepts influenced Ford motor company, and provide help to Ford management and investment.

Demand Curve Shifts

As the data from World Bank shows that the National Income per capita is $55,320 in 2014 and $55,980 in 2015, population is 318,907,401 in 2014 and 321,418,820 in 2015 (World Bank Database, 2014-2015), and gasoline price is $3.44 per gallon in 2014 and $2.52 per gallon in 2015 (The U.S. Energy Information Administration, 2014-2015). Those variations would cause the demand of Ford cars changes, and this change is shown as a demand curve shift in the diagram. The demand curve represents the negative linear relationship between the demand and price, and it shifts when any relevant variable other than price changes, like consumers’ income, population, consumer preference, and price and availability of related goods. As the national income and population increased, indicate that there was more buyer power in the market, and people are willing to pay more on products. Since the gasoline price decreased from 2014 to 2015 and as the related good of cars, this indicate that there was more demand on gasoline, and consumers had no pressure when buy or use cars. Demand of complements always have the positive relationship, so the demand of cars would increase as well. As Figure 1 shows, the wholesales of Ford increased from 6,323,000 units to 6,635,000 units, revenue increased from $135.8 billion to $140.6 billion, and the market share increased from 7.1% to 7.3% (Ford Annual Report, 2015).

Figure 1. 2015 Key Metrics Compared with 2014

Note. Collect data from Ford 2015 Annual Report (http://corporate.ford.com/investors/reports-and-filings/annual-reports.html)

Movements Along Demand Curve

While the Ford company incentive declined, the average price of Ford brand increased $ 2,700 compared to the previous year, more than triple the industry average (Ford News, 2015). In general, when price of product increases, the demand of this product will decrease. As I mentioned in the first concept, demand curve is a negative linear relationship between price and demand, so when price goes down, it will lead to a point movement along the demand curve, which