| With the recent change in the economy the | | | | the demand for automobiles is decreasing |
| automobile industry has been suffering. The rise in | | | | manufacturers do not need as many employees |
| gas prices kept customers away from buying | | | | working on producing cars. So in turn, since sales |
| SUV’s and other large cars; however, since our | | | | have fallen, manufacturers are letting go of |
| economy is undergoing a “recession” all sales | | | | employees used in direct labor because it will |
| of automobiles have declined. Car production costs | | | | decrease their expenses. Direct labor is the only |
| have changed recently because of the change in | | | | production cost in which the car manufacturers can |
| sales and most automobile companies are cutting | | | | control themselves. By decreasing their labor costs, |
| their production costs as much as possible. Changes in | | | | manufacturers are cutting down part of their |
| production costs will affect costs from each direct | | | | production costs. |
| materials, direct labor, and manufacturing overhead. | | | | Manufacturing overhead in producing a car includes all |
| Direct materials in the automobile industry are all the | | | | the other costs other than direct materials and direct |
| products which are used in the production process. | | | | labor. For example, the importing and exporting of |
| When most customers are buying a car they do not | | | | the cars is included in manufacturing overhead. The |
| think about what goes into making each individual car. | | | | cost of importing certain cars into the United States |
| Direct materials or raw materials used in developing a | | | | is probably one of the many manufacturing overhead |
| new car are costly to car manufacturers, which in | | | | costs which have increased. This cost most likely |
| turn becomes costly for customers. Since the price | | | | increased because of the increase in gas prices over |
| of raw materials has severely increased other costs | | | | the last two years. Along with direct materials and |
| need to be decreased so the costs of raw materials | | | | direct labor, manufacturing overhead costs need to |
| are not over-bearing. In other words, the cost of | | | | stay low in order for production costs to stay low. |
| raw materials such as metal, plastics, and fibres are | | | | For car manufacturers to stay in business during the |
| increasing drastically. For example, recently in Tokyo, | | | | recent change in our economy, they have to keep |
| Japan where the Nissan manufacturer is based, the | | | | the production costs low. However, with our current |
| cost of steel sheets rose thirteen percent. Direct | | | | economy production costs are unstable and currently |
| materials in this specific industry are extremely | | | | increasing. The demand for automobiles has |
| important so you must buy your materials at | | | | decreased because customers are looking to save |
| whatever price necessary. Because direct materials | | | | money not spend it. Because sales have decreased |
| are costly, other parts of your production need to be | | | | the cost of producing automobiles has done the |
| decreased. | | | | opposite, it has increased. For the next year or so, |
| Direct labor includes all of the people or employees | | | | sales will stay low and production will stay inflated, |
| that help in producing a car. While sales have | | | | but hopefully somewhere in the near future our |
| decreased in the automobile industry, so has the cost | | | | economy will return to the way it was before. Car |
| of direct labor. In the 1980’s the hourly unit labor | | | | sales will return to normal and production costs will |
| cost as the percentage of new car costs was | | | | also. The question is, by the time you need to buy |
| twenty-six percent. And the most recent hourly unit | | | | your next car, will the economy have changed? |
| labor cost per new car is about fifteen percent. Since | | | | |