Credit Markets: Big Drive Auto Scenario
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Management makes business decisions based on the projected credit markets. Explain the evidence that supports these recommendations and how your recommendations might need to be modified for the alternative economic futures.
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Solution Summary
This solution discusses how credit markets impact the performance of the company in 700 words.
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Credit markets have a major impact on the performance of any company. It is all the more important in the case of the automobile industry since most auto sales are credit financed. Whenever credit markets are in trouble auto industry is usually the first to suffer. We are just at the end of one of the worst, if not the worst, credit crisis in the post War era and many people think the only way now is up.
Credit is relevant for the efficient operation of businesses. Over time it has taken the place that money enjoyed. Credit now plays a role at every stage of the production process. Let us begin with the very basic raw materials: these need to be brought in from wherever they are found in nature. This usually involves cross border trade, and most of this trade is financed by letters of credit. A bank issues a letter of credit to the shipper that assures the buyer of payment on delivery of goods. The shipper has to incur all costs before the payment, and this in turn is financed by some other financial institution. Once, the good is received the shipper gets paid, and pays off old debt. To assemble and make products factories ...
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