Chapter One- Q&A- Sorina Panfil MGT 770 Due 02/11/14

1. Explain how the current economic recession differs from the depression in the 1930s. According to the definition given by the national Bureau of Economic Research, the 2007-2010 economic condition fell under the definition of a recession rather than a depression. The main factors that indicate to that are the difference in GDP. The recession had a GDP decrease of less than 5% while 1930s had a loss of 30% of GDP. The levels of unemployment also differ. Under current economic conditions, we saw an unemployment rate of 5-10 % whereas in the 30s the unemployment was as high as 25-30%.As far as consumer prices remained stable during the recent recession while in the 30s they were down 20-30 %.Although the recent economic conditions were labeled as a recession, they still took a huge toll on the economy. The government has played a huge role through their involvement in crisis like the one at Chrysler or GM. However, when the government steps back, the firms will need to adjust to the new economic environment if they want to be successful. 2. Why has the U.S. Government taken a significant ($787 billion) role in the current economic recession? The governments main role in the crisis was to try and stabilize it. The stimulus package was in reality an attempt to get the economy back on track. The first part of the plan consisted of the creation of a bank or two that would rely on taxpayer and private money to purchase and hold the banks bad assets. The second part of the stimulus package was to give banks capital to work with under the condition that they cut the salaries and perks of their executives and sharply limit dividends and some corporate acquisitions. The last piece of the plan included the allocation of the last $350 billion that the Treasury had for the bailout to rely on the Federal Reserves ability to create money which would allow the government involvement in the management of markets and banks.

Chapter One- Q&A- Sorina Panfil MGT 770 Due 02/11/14

3. What led to the collapse of the economic environment within the U.S.? Answer the same question from an international perspective. The main reason of the collapse was the fact that as the recession unfolded and companies closed shut their doors, people started losing jobs. As a consequence, their inability to pay their mortgages crumbled down the ability of the banks to operate. Another reason that contributed to the crisis was the fact that the housing market had started seeing a decrease in their prices. After very strong years from the mid 90s to 2005, the housing prices stopped their growth in 2006 and started their decline in 2007.The decline in price meant that that it become difficult refinancing the mortgage rate which resulted in an increase on defaults. The information that surfaced after was that about half of the loans were sub-prime , meaning that they were given to people with spotty credit history. With the auto industry, companies like GM and Chrysler had to borrow a huge amount of money from the government to try and save the companies and with them the jobs . Unfortunately, GM did not survive the crisis and had to file Chapter 11 bankruptcy. Chryslers approach was a bit different. It asked Fiat for help. Fortunately, the deal looks fruitful so far. The international crisis was ,of course, linked to the situation on the American market. With the decrease in the housing price, investment banks and commercial banks across Europe also suffered losses. Home builders, real estates worldwide had to lose as a result of the decline. What added in was the fact that investors that still had money were reluctant to invest during uncertain economic times.

4. What can we learn from Table 1.2?

Table 1.2 includes the Top 10 US bankruptcy filings of all times including Texaco Inc as far back as 1987. Also, the table emphasizes the severity of the recession as it list six companies

Chapter One- Q&A- Sorina Panfil MGT 770 Due 02/11/14

that filled bankruptcy during the years of recession. Also, it goes to show that even powerful companies can become frail if the economic condition dictates so.

5. Why has Mexico encountered such a significant collapse from an economic perspective? Due to the fact that Mexicos biggest trading partner was USA and due to the fact that UDSA was in recession phase, affected tremendously the countrys GDP. It is estimated that about 1/5 of Mexicos economy depends on exports to the U.S and due to decreased demand, Mexico s GDP fell at an annualized rate of 21.5% in the first quarter of 2009. A good example of the impact is the auto industry which saw a 41% decline in production

6. For a firm of your choice, explain how this firm can grow within turbulent environments using Figure 1. Nissan can be used as an example of a company that knew how to grow during turbulent economic times. According to its official website, 2011 was a record year for Nissan in terms of sales and growth. Despite natural disasters and currency exchange headwinds, we demonstrated our ability to manage successfully through crisis, quickly focusing on the actions required to protect the company and to ensure business continuity. Against a turbulent environment caused by factors out of our control, we made substantial progress across many fronts during 2011. I do believe that Nissan successfully scanned the environment and found what needs to be done across multiple areas. It forecasted that the spending in markets such as China or Brazil will bring additional revenues to the company. Due to the fact that Nissan identified the shift, it becomes proactive in entering diverse partnerships across the globe with companies such as Tide of China or Dost of India. Another step is developing resources with flexibility. Nissan is successfully building new products such as an expanded multi-sensing system built

Chapter One- Q&A- Sorina Panfil MGT 770 Due 02/11/14

on their Around View Monitor image processing. In other words, they build upon existing technology rather than changing their system entirely. Of major importance is addressing the current strategic factors. Nissan is able to recognize the increase in fuel costs and is actively trying to implement the Xtronic variable transmission which would provide a fuel-economy benefit of about 10%. Also, during turbulent times, firms must learn how to reconfigure their resources to meet the change in environment. The Nissan Leaf vehicle addresses the issue of increasing fuel costs and high emission by providing a 100% electric zero emission vehicles. Lastly, firms need to learn based on past mistakes of their competitors. Rather than producing cheap and unreliable products which led to the failure of many well known automakers, Nissan is committed to providing the consumer with a high quality product that suits their needs. By the vehicle consistency in terms of quality, the car does not rapidly lose its value. If a company plans to remain a successful player on the market, all the mentioned factors need to be monitored, tweaked and implemented during times of turbulence.

7. What is one of the single most important factors to judge whether a country is recovering from the global economic recession? I believe cash is the single most important factor to judge when it comes to the recovery of companies from recession. Cash revenues lead to an increase in spending which is considered another important facet of shown growth. From a personal standpoint, I think for consumers cash is also the single most important thing. Without cash, consumers cannot spend and we all know that consumer spending drives about 70 percent of the economy.