The Auto Industry's Other Crisis

The Auto Industry's Other Crisis
Kiley, David and Welch, David
"The Auto Industry's Other Crisis"
MSNBC.com
Business Week
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Keywords:
auto industry, suppliers, inputs, liquidity, derived demand
Summary: Key Points in the Article
The U.S. auto industry continues to suffer setbacks related to declining sales. While most of the attention has focused on the big threeautomakers many of their suppliers are also feeling pain. Many have already ceased operations with little or no fanfare and many more are nearing that point.
These smaller companies have seen dramatic declines in revenues primarily due to problems related to the big automakers. Payments from Detroit to suppliers fell to $2.4 billion in the most recent month from a monthly average of $8.4 billion.Coupling this reduction in revenue with a credit freeze puts many of these firms in a cash crunch.
Industry representatives are urging the Treasury to provide some relief by encouraging banks to continue lending. Prior to the current crisis banks would lend up to 90 percent of the value of inventories or receivables. Now these lenders have pared back to 50 percent. Most of these firms don't have acash cushion to last long. Thousands more jobs may soon be lost if the situation is not resolved soon.
Graphing it Out

Analyzing the News
The demand for auto parts is derived from the demand for autos. Therefore, if auto sales are declining then so is the demand for components used in new cars as shown in the previous graph. Some of this demand will be offset by the demand for parts used tokeep older cars on the road longer. This repair demand will be significant for some parts companies and insignificant for others depending on what they produce. In many cases you will see revenue fall as illustrated by (P1 x Q1) < (P0 x Q0).
Thinking Critically Questions
1. What factors drive the demand for most auto parts?
2. Why is access to credit critical for many smaller partssuppliers?
3. Why is their access to credit a bigger problem in this economy?




Crude Futures Rise in New York as U.S. Oil Supplies, Jobless Claims Drop

Shenk, Mark
"Crude Futures Rise in New York as U.S. Oil Supplies, Jobless Claims Drop"
Bloomberg.com
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Keywords
crude oil, prices, job growth, economic activity, oil supply, futures
Summary: Key Points in the ArticleU.S. jobless claims and crude oil inventories both fell and contributed to an increase in the price of crude oil. One analyst attributed the higher prices to higher levels of economic optimism combined with the supply reduction resulting from Hurricane Alex. Crude oil inventory levels fell by more than seven million barrels last week. Crude oil prices for August delivery responded with a 2.1percent increase, or a little over $1.50 per barrel higher to settle above $75 a barrel.
The labor market showed signs of life with fewer Americans applying for unemployment benefits. In addition, the International Monetary Fund (IMF) increased its forecast for global growth based on strong economic numbers for the first six months of the year. IMF estimates for 2010 world economic growth are now 4.6percent.
Graphing it Out
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Analyzing the News
A decrease in the stockpile of crude oil (inventory level) signals demand is exceeding supply and provides information that pushes the price of oil futures higher. Traders will trade based on the expectation that demand will continue to grow as the economy recovers. This expectation is consistent with an increase in demand for oil and theresulting price increase as shown in the previous graph.
Thinking Critically Questions
1. What supply factors impacted the price of crude oil?
2. What demand factors impacted the price of crude oil?
3. How could crude oil prices impact the U.S. economy?




Pumpkin Farmers Profit From Odd, Ugly Varieties

Mercer, David
"Pumpkin Farmers Profit From Odd, Ugly Varieties"...