The Federal Reserve Open Market Committee sets monetary policy by raising or lowering interest rates. This affects rates on everything from mortgages to car loans. Fiscal policy is set by legislative action or executive order.
The auto industry plays a significant role in the U.S. economy. In October 2010, employment at auto and parts manufacturing and dealerships was more than 3.3 million, according to the federal Bureau of Labor Statistics.
The health of the auto industry depends on the health of the economy. Monetary policy sets the tone for the economy. If interest rates are low, cars are more affordable, which usually means more auto jobs. If interest rates are high, dealerships have more unsold cars and auto jobs are fewer. This leads to less taxes paid by the industry and more unemployment insurance payouts, both of which affect fiscal policy.
This impact was severe during the financial crisis of 2008, as both General Motors and Chrysler had to be rescued by government bailouts. These bailouts became necessary to protect the millions of jobs directly and indirectly dependent on the industry. With General Motors’ return to the capital markets in 2010, taxpayers may get most of their bailout money back.
- Reuters: Timeline: GM’s Year, From Bankruptcy to IPO; Aug. 18, 2010
- U.S. Bureau of Labor Statistics: Automobile Industry: Employment, Earnings, and Hours
- “The Wall Street Journal”: U.S. Throws Lifeline to Detroit; John McKinnon and John Stoll; Dec. 20, 2008
- Bloomberg Businessweek: The Auto Beat: Doing the Math on Obama's Detroit Bailout; David Welch; Aug. 02, 2010
- hundreds of new cars waiting for their owners image by Stephen Gibson from Fotolia.com