Economic analysis of U.S. Automotive Industry

ECP 6705 Portfolio Paper

In this portfolio paper you are expected to conduct an economic analysis of the selected industry, including of the cost structure and profitability.

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Paper Citations – Remember that you are writing an analysis, meaning you are expected to gather information from quality sources and synthesize it into a convincing analysis of the industry. You should directly quote from sources when appropriate, but, in general, should avoid using direct quotations. Your goal is to convince the reader that you are knowledge about the industry, not that your source is knowledgeable. Again, you should cite all direct quotations and identify them correctly in your paper using quotation marks, but you must also include citations when you use facts gathered from your sources. If you are unsure about how to correctly cite your sources, please ASK!

Tips for Writing a Good Paper (many of these come from Dr. Hawkins, with some additions of my own)
I. What have you read or what do you need to read?
a. How much do you know about the industry? Meaning, how much have your read about it, not just “heard” about it? How current is the information?
b. Do you have regular sources for industry information or news? Newspapers? Social media (perhaps Twitter for company updates or press releases)?
c. Could you describe recent examples of an awesome strategy (by a company) and a horrible strategy?
d. How credible is the source? Are even credible sources to be blindly believed (“Do you somehow believe that commercial industry reports (e.g., IBISWorld) are sacred texts”)?
e. Are there any unusual relationships between companies or related entities (for example, a student once reported a D/E ratio for Hyundai of 0.35). This failed the “smell test” and the student later discovered that a related company held all of the factory-based debt and Hyundai leased the factory.

II. Thinking about the data and information you find
a. Who are the workers?
b. Is the industry capital intensive?
c. If little physical capital is owned by the company, is production outsourced? What does the company pay for? (e.g., research and development for pharmaceutical companies who pay other companies to actually manufacture and package product)
d. Are small companies able to compete? Is it because of a particular niche?
e. In thinking about the short-term and long-term prospects:
i. What are the complements and what are the substitutes?
ii. Does your industry fit in our basic industry structures?

III. Writing (Suggestions)
a. Support your story! You should be familiar with many sources of business data and information from GEB5930. If you need assistance, the business reference librarian is a great contact.
b. Use numbers but be careful you tell a story about the numbers, not just present them!
c. “Watch out for roller-coaster economics (e.g., ‘The financial service department’s assets have decreased by $295.8 million over the past six months mainly because its accounts receivables decreased by $232.8 million and cash increased by $9.1 million’)” Think about which numbers help tell your story, which are irrelevant, and which might be presented in a table or graph but don’t necessarily need to be commented on.
d. Tables are helpful, but can be wasteful. Consider what the reader gains from the visual display instead of just writing about it? A single comparison can probably be made in the narrative. Several data points might best be accompanied by a table or figure.

ECP 6705 – Managerial Economics Portfolio Paper Part I Outline (due Sunday, 06/07/2020)

Brief Overview/Industry Analysis (2-3 pages, 30 points) (Some basic information on Tobin’s Q can be found here.)
1. Describe the industry.
2. Calculate our version of Tobin’s Q (for us, the ratio of market cap to book value) end of last fiscal year for three firms
3. Use the CEO’s analysis in the annual reports/interviews to explain the ratios
Labor Costs and Quality (3-4 pages, 60 points)
Hint: even for very international industries, use for data 1. How high are wages?
2. What are the growing occupations?
3. Differentiate between the US (or OECD) labor market and the rest of the world
4. Are there any labor quality problems?

Evidence from Recent Capital Activity (3-4 pages, 50 points) 1. Start with one firm, identify financial capital activities (SEC filings)
2. Explain the effect on the firm’s physical capital
3. The effect on the firm’s performance is examined
4. Go beyond your firm and examine whether the activities above are unique (to that firm) or common in the industry

Financial Ratios (2-3 pages, 50 points)
(How is the management of operating costs, revenue generating capital, and financial leverage affecting firm performance?) 1. Start with at least two firms (perhaps three firms)
2. Examine the relationship between D/E and ROE (i.e., is leverage working?)
3. Examine the relationship between Profit Margin and P/E (e.g., are low margins viewed as temporary?)
4. Include one other important piece of financial information
References (70 points)
(Although this section seems to be heavily weighted, recognize that these sources are the ones you are citing in the above sections, so these points are also capturing the quality of the information you included in the prior sections).

1. Industry level sources are included
2. Business periodicals are included
3. Something extra (e.g., interview or trade journals) is included
4. This list reflects the reading of an “expert”.
Total points for the above sections: 260
Total points for Paper I: 300 (includes 40 points for writing proficiency; mechanics, such as punctuation, grammar, etc. and readability, such as structuring of ideas, word choice, etc).

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