The impact of economic stimulus on automobile demand

Essay from the year 2010 in the subject Business economics - General, grade: 8,0, Maastricht University, language: English, abstract: After the beginning of the financial crisis in 2008, nearly every industrial oriented country struggled keeping the current economic level, due to a sharp economic downturn. The countries' main aim was to stabilize declining sales volume and to hinder economic shrinkage in key industries. Key industries are industries with far-ranging value chains in different branches of a countries' economy and different geographical parts of a country. Those key industries are the automobile industry in Europe and the USA. Many firms laid off workers or changed their labour condition into temporary work. The result was a lower national total income and less spending capacity which leads to lower demand and finally to a lower total economic surplus. To cope with the danger of a recession many of them introduced an economic stimulus package. These packages included subventions for certain industries or incentives for consumers and companies to plead investments. The following paper analyses and describes the impact of incentives and stimulus measures, such as scrappage bonus in Germany and UK or sales tax reduction in the US on sales and demand. It relates to basic economic models, theories and actions governments took to cope with these issues. In the last step, the paper outlines and further evaluates the main critics emerged in public press. Moreover it will be discussed whether the decisions, made by governments, contribute to long lasting economic growth and prosperity or not.