Economic Impact of Fords Investment in the Canadian Economy - Case Study Example

Economic impact of Ford’s investment in the Canadian Economy Economic impact of Ford’s investment in the Canadian EconomyBackground Ford in collaboration with federal and Ontario governments made a C $700 million investment at the Oakville Assembly aimed at augmenting manufacturing capability of the plant to meet increased global demand (Nelson, 2009). The expansion will ensure value delivery to global consumers and aid in reducing the unemployment levels in Canada. The plant in Ontario, Canada will be used by Ford for the manufacture of the basic underbody for Ford Flex, Lincoln MKX and MKT Crossovers, and Ford Edge. Investment has varied impacts on the economy in which the business is located and is from this understanding the basis for the research is developed. This study aims at analyzing the economic impact of Ford’s investment in Canadian economy and the auto industry. Impact on the GDP Investment affects Gross Domestic Product (GDP) through the elements that make up GDP. Gross Domestic Product is the aggregate of production obtained through summing up all institutional units involved in the production (Brezina, 2012). Gross domestic product contains investment as one of its components and, therefore, an increase n investment result in increased in gross domestic product through direct addition, accelerating consumption, increased government spending and augmented exports. Consumption The FORD investment in the Oakville manufacturing affects consumption through the impact it has on the ability of the population to purchase the vehicles and the production of the vehicles that meet consumer demand and wants. This is well envisaged by Ford Canada, CEO in the statement the investment will allow Ford to be in a position to “react quickly and efficiently to shifts in consumer demand” both within North America and globally (Ford, 2013). The investment allows Ford to serve 100 countries worldwide, including some right-hand drive markets. The complexities and production requirements are met by the developments and redesign generated by the investment of the C$ 700 million. The investment will spur consumption through the multiplier effect increasing the level of consumption in the economy. Mankiw defines multiplier effect as an additional shift in aggregate demand that result from the expansionary fiscal policy increases income and results in increased consumer spending (Mankiw, 2004). The investment involves an increased in private investment and augmented government spending that increases spending through the multiplier process. Investment spending in the Ford plant increases job availability for the people resulting in increased income. Increased income generates more disposal income for the workers allowing them to spend more since consumption is positively related to consumption. The investment, therefore, has a positive effect on consumption and because it is an additive function of Gross domestic product, GDP is increased (Schreiber & Traum, 1983). Investment The C$ 700 million investment by Ford, federal, and Ontario governments allows the company to invest in machinery, redesign of the manufacturing facilities and creation of facilities in the Oakville plant. Investment allows for the company to built better facilities that will make the company have the ability to meet increased demand for crossovers that are currently form 23 per cent of Ford sales in 2013 and are projected to 29% by 2020. Investment at Ford allows for investment in better manufacturing and efficiency by Ford suppliers to meet new demand needs by Ford to ensure that the manufacture of the Ford Edge and other vehicles following the redesign of the plant from the C$ 700 million investment. Automodular Corporation has to increase Extragal manufacture to meet new Ford’s demand showing the increased investment resulting from investment in Ford. Therefore, the investment allows for better development and other investments both by the company and by suppliers, and since investment is additive element of GDP, GDP will augment from the investment. Government spending The impact of the investment on government spending is that it increases government spending in the economy. This is because of the $ 140 million dollars that the federal and Ontario governments contributed to the investment for the achievements of job creation, increased income, and revenue generation by auto manufacturers in the region. Government spending is an additive function of gross domestic product, showing that the investment results in an increase in gross domestic product. Exports The investment results in augmented production capacity, competence, and cost effectiveness, and process quality in the Oakville manufacturing plant. This will allow Ford augment competitiveness in the global market through production of better quality vehicles that are in demand in the international market. Diane Craig, Ford Motor Company of Canada CEO states this well, “to deliver what our global customers want and value: a high quality, vehicle with class-leading design, fuel efficiency and performance” (Ford, 2013). Filling this demand will entail increased export of the vehicles will be anchored to the investment at Oakville, since it “is vital to Ford’s global manufacturing” (Ford, 2013). Ability to react to changing consumer demand, due to increased efficiency and effectiveness of the Oakville Plant will enable Ford increase exports that meet consumer needs. These increased exports will positively result in better gross domestic product since to arrive at GDP summation of investment, consumption, exports, and imports. The exports are projected to increase from 85 million in 2013 to 110 million annually by 2020 showing that the investment has greatly allowed Ford to increase exports. In conclusion, the investment by Ford, the federal, and Ontario governments in the Oakville Plant to the tune of C$ 700 million will result in an increase in GDP. This increase is due to an increase in the elements that make up GDP namely investment, consumption, and exports. Impact on employment Investment is positively related to employment owing to the creation of facilities, capital, and facilities for the generation of job opportunities (Hollerman & Myers, 1996). Cai states the investment results in the generation of new employment facilities depicting a positive relation between investment and employment (Cai & Wang, 2012; Cai, at al., 2010). The investment has allowed the Oakville Plant to redevelop its global platform allowing the plant to meet capacity needs creating employment opportunities for the people to work for the increased capacity to be met. James in the Canadian Press stated, “Ford Canada added 300 jobs at the plant last year” and will have more than 4,000 employees at the Oakville Plant by year end (James, 2014). Investment James reports in the Canadian press that the Oakville plant will be employing 1,000 jobs (James, 2014). The jobs will come because of the augmented production ability of the plant to produce new vehicles depicting the positive impact of the investment is evident through generation of new jobs. However, the investment has led to the closure of engine plants and factory in Windsor and St. Thomas, Ont., respectively. The net effect of the investment on employment is that there will be more job increases than losses from the investment in the Oakville plant in Ontario. Involvement of government subsidies and tax incentives in the decision Subsidy is a conditional or unconditional grant to any firm or individual for the provision of any good or service by the government (Silva, 2012). There was an involvement of subsidy in the investment with a contribution of C$140-million from the federal and Ontario governments. There are no tax incentives evident in the case of Ford investment in the Oakville manufacturing plant (Noguez, Maria-Isabel Studer, 2001). Impact on Ford Motor Company The investment has an impact on Ford Motor Company owing to the increased ability to meet the needs of the consumers in terms of redesign of production facilities and ability to generate more job opportunities. The investment has allowed Food motor company have better facilities, increase efficiency, and respond quickly and effectively to changes in consumer demand. The impact on employees by the investment is increased efficiency at the work place, developed production facilities, use of better machinery, and the development and training for better use of skills. The other impact on employees is satisfaction from improved facilities (Kowalewski & Weresa, (2008). Shareholders are impacted by the investment in terms of increased profitability from the augmented global market share. Increased global market share is achieved by Ford Motor Company from production of newly designed vehicles to meet consumer wants and demands. Shareholders will gain from increased dividends resulting from higher profits and success in local and international market. The other impact of the investment on shareholders is the increased ability of the firm to make a return of their investment, since the investment has enabled Ford Motor Company to be more competitively in production, design, and response to changes in consumer taste. Suppliers Investment increases the need for raw materials needed for use in the increased plant facilities and for new jobs undertaken at a given investment area (Morel et al., 2012). The Oakville manufacturing plant redesign allowed for augmented functionality and increased tasks requiring more raw materials resulting in an increase in the need for more supplies. ArcelorMittal Dofasco Extragal steel supplier has benefited from the investment in the Ford Plant owing to increased use of the steel in the manufacture of Ford Edge and other vehicles from the expanded Oakville Plant. The Extragal steel is used in the manufacture of outer body panels of the Ford Edge increasing the demand for the steel by the Oakville plant after the redevelopment using the C$ 700 million investment. One of the impacts of the investment is an increase in supply opportunities for the supplies to Oakville manufacturing plant. The other impact that the investment will have on suppliers is a closure of two Oakville plants owned by Automodular Corp. The decision to close is because of the ability of Ford to in-house work that it previously outsourced to the company owing to increased efficiency, production ability, and redesign from the investment. This shows that the investment has seen the exit of supplier in the Oakville market from the increased ability of Ford to produce efficiently on its own. Conclusion The effects of the investment by Ford and federal and Ontario governments in the auto manufacturing facility in Ontario Canada shows that national auto strategy is in a position of influencing economic growth (GDP growth), employment, and better benefits for the employees and other Ford stakeholders (Kesidou, January 01, 2011). Investment of C$ 700 million in the Oakville manufacturing plant increasing gross domestic product from increased consumption, investment, exports, and government spending, results in job creation, and positively impacts on Ford Motor Company in meeting supplier, employee, and shareholder needs. In general, the impact of the investment in the economy is an increase in the gross domestic product, generation of employment, and ability of the economy to make more exports allowing for better resources and ability to meet global consumer needs (Pinto, 2013). References Ford Inc. (Feb. 13, 2013). Ford Plant. Accessed on November 13, 2014. James, D. (October 1, 2014). Ford Motor Company of Canada is hiring 1,000 more people at its Oakville assembly plant to build the new Edge. Canadian Press. Flavelle, D. (October 2, 2014). Ford hiring 1,000, supplier closing plants in Oakville. Toronto Star. Brezina, C. (2012). Understanding the gross domestic product and the gross national product. 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