Monetary Policy in Automotive Industry

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Monetary Policy in Automotive Industry The Effects of Inflation on the Automotive Industry In the United States, the economy is what drives the lifestyle of the people who live. There are two extremes, inflation and a recession. “Inflation can be defined as the overall general upward price movement of goods and services in an economy” (Bureau of Labor Statistics, March 1, 2012). A recession can be described as a general slowdown in the activity of the economy. According to Brue (2010), monetary policy is defined as a central bank’s changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth. The automotive market is directly affected by the economy of the United States which is also directly controlled by monetary policy. In the automotive industry, there are two target groups of people that are marketed towards. These two groups are the “Baby Boomers” and “Generation Y.” Akers (2001) reported that the “Baby Boomers” own more than 70% of the financial assets in the United States, they control 70% of the households in the United States, and the “Baby Boomers” purchase 61% of all new cars and 48% of all luxury cars. “Generation Y” is now entering the high spending years of their early adulthood. The population considered “Generation Y,” veers away from direct marketing due to growing up with marketing saturation, and tends to seek out their own information when they feel that they are in a comfortable place to purchase a vehicle (Generation Y, 1999). The automotive industry strives to make its customers happy. There are many designs and styles of cars to target to the different customers in the market. A survey reported that 44% of Americans desired to purchase a car, 25% desired to purchase an SUV, and 19% desired to purchase a truck (Naughton, 2005). Americans

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