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.
Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. His work has appeared in various publications and he has performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Securities Institute.