General Motors With A Major Advantage example essay topic

Despite Mexico's economic delay, the long-term future of Mexico's auto sector looks intense as long as it can adapt to further liberalization of the regional market. Spokesmen from Mexico's key vehicle assemblers-General Motors say "Automotive goods are the nations largest export, generating more foreign exchange than oil or tourism". In the early 1980's the Mexican government encouraged the automobile industry to shift from import substitution to export production. Doing so lowered the content requirements that the country required for exporters and also required assemblers to balance imports of auto parts with an equivalent value of automobile exports. The automotive and overall economy in Mexico are closely linked through factors such as exchange rates, interest rates, and inflation. The Mexican economy is not quite 10% the size of the United States economy and has undergone major change during the past decade.

The early 1980's saw the economy stagnate as oil prices dropped, leaving the country with tremendous external debts and staggering inflation. Economic policy changes have improved Mexico's economy under the direction of the International Monetary Fund. As General Motors continues to conduct business across the border in Mexico to its subsidiary in Mexico, it will find that its economic relationship is very strong. The United States is Mexico's largest trading partner. At the same time investment from the U.S. A represents nearly two-thirds of total foreign investments in Mexico. Inflation, as measured by the change in the National Consumer Price Index, registered an "accumulated increase of 1.25 percent during the first six months" of 2003.

During the second half of the year, Mexican financial markets reported favorable results supported by the reduction of geopolitical risks, the improved economic perspectives for Latin America and the low levels of long term interest rates in the US capital market. As we near the tenth anniversary of NAFTA's implementation, its important to point out the great success that Canada and its North American partners have had. Canada-Mexico commercial relations have expanded dramatically, spurred by Mexico's economic development and by the major trade momentum stemming from NAFTA. Under NAFTA, on January 2, 2003, all tariffs were eliminated on trade in originating goods between Canada and Mexico, this proved to provide General Motors with a major advantage to having subsidiaries in Canada and Mexico were it has the advantage to produce, strategize and sell all under this agreement. This three-way trade supports more than two million jobs in each country. The past year for Canada, economically speaking, has given way to a rising GDP which grew 3.7%, while unemployment which started high fell to 7.5% at most recent statistics.

The Bank of Canada saw enough economic strength and inflation stimulus to bump up interest rates by 75 basis points, with three small increases between April and July. General motors took advantage of this decent employment picture and rock bottom interest rates and considered the hefty consumer spending that was going on which was especially good for sellers of big ticket items such as automobiles. Thus at the end of 202 General Motors posted an increase of almost 10% more vehicles sold in 2002 than in 2001 which keeps it ahead as Canada's largest company by a wide margin over the new No. 2, George Weston Ltd. This is considerate to the fact that General Motors Acceptance Corp. of Canada is one of the countries most indebted companies with a rank of 7 at $1,439,432,215. "General Motors has been both the biggest victim of the low interest rate world and the biggest exploiter of the newfound ability to borrow cheaply. Its dollars 13.2 bn bond issue in June, the largest in US history, was at the lowest rates it has seen for generation.

The falls in interest rates-combined with a corporate bond bubble-more than overcame a widening in the risk premium over government bonds that GM is being forced to pay". For the United States with base rates as low as they are now, companies such as General Motors are succumbing to pressure to offer zero percent financing. Add in the car industry's growing need to subsidize sales with cash back offers and what was once seen as little more than an expensive sales gimmick now represents widespread free borrowing for customers.