Applied Managerial Economics

Jan 11th, 2015
Price: $40 USD

Question description

Problem-Based Learning (PBL) Scenario: AutoEdge

AutoEdge is a leading national automotive supply company located in Detroit, Michigan. Founded by Jonathan McAlister in 1976, the company specializes in engines and transmission parts and has been supplying products to the three largest U.S.-based automakers for over 30 years. AutoEdge’s name is known by customers and leaders in the automotive industry for quality, dependability, and reliable products. In fact, despite the extra cost that is added to the automobiles, consumers appreciate the AutoEdge brand name and often make purchases because of it.

In 2005, AutoEdge’s board of directors decided that the company needed to make some drastic changes because of the high cost of labor, rigid American regulations, and increased competition from other engine and transmission part suppliers. Their solution was to gradually close all manufacturing operations in Detroit and begin outsourcing to a well-known factory in South Korea. The board reasoned that this change would allow the company to compete with the growing industry, meet the automotive manufacturing demands, and increase company profits. Some board members were skeptical about the move, however, because AutoEdge had built a reputation for high-quality, detailed craftsmanship, and they feared that transitioning the manufacturing operations overseas would cause quality to diminish.

For the next 5 years, this strategy proved successful. The company showed signs of financial growth and company profit.

However, in 2010, the company was found guilty of supplying products that failed quality tests. As a result, millions of automobiles had to be recalled. The recall was highly publicized, and the issue of poor quality products impacted negatively on American automotive companies. AutoEdge’s $51 per-share stock has fallen to $4 per share, and brand acceptance has come under scrutiny among even its most loyal customers. Although some economists blame these negative effects on the products, others believe that it had to do with the termination of AutoEdge’s Chief Executive Officer, Fred McFadden.

Lester Scholl, Chairman of the Board of Directors, has called an emergency meeting to discuss AutoEdge’s short-term and long-term strategies. Among other things, they need to discuss the possibility of continuing production overseas or returning it to the United States. Lester and others on the board are well-known for being financially conservative and risk-averse. Because the American economy is experiencing high unemployment, low interest rates, low GDP, and low inflation, it might be sensible to make the change. To some extent, they believe that these macroeconomic factors can be used to their advantage. They realize the immediate challenges such as the brand damage, the growing competition, and the financial challenges the company is facing require immediate action. A new strategy must be formulated quickly to save the company from bankruptcy.

You have been hired by AutoEdge’s board of directors as a research analyst. Primarily, your job is to list and describe some of the legal, cultural, financial, and economic factors that AutoEdge needs to consider when deciding to either stay in South Korea or return to the United States. Because Fred McFadden was recently terminated, you will work directly with the board until a new CEO is named.


Lester Scholl's administrative assistant calls you on Monday afternoon to set up a conference call between you and the chairman tomorrow morning to discuss the board's reaction to your list and to discuss your next task. You call the number she gave you, and Lester joins the call shortly after.

"I'm pleased with your work," he says. The board was impressed with your list of factors. Your ranking made sense because your explanations were well-written. I suspect they read everything you sent because it was concise and clear. Good job."

"Thanks," you say, and you feel relieved that your first assignment was well-received.

"Your list provided the basis for a good conversation about the manufacturing operations," he says. "We want to know more about the economy of both countries to further inform our decision-making process."

"That makes sense," you say. "The United States and South Korea hold many distinct economic factors that may affect AutoEdge’s long-term financial performance."

"Right," he says. "Your research on the two economies will give the board enough information so we can advise the new, incoming CEO."

"What should my research include?" you ask.

"In your research, you must take into consideration several macroeconomic factors," he says. "We want to see information about the gross domestic product (GDP), unemployment, interest rates, and inflation for both the United States and South Korea. Make sure your research is current; that is, no more than 6 months old."

"I'll get started right away," you say.

"Very good," he says. "Let me know if you have any questions, and I'll put you in touch with some of the other members of the board if I can't provide the answers you need."

"Great," you say. "Thank you."

Deliverable Length:1,200–2,000 words, including research in essay format

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(Top Tutor) Daniel C.
School: UT Austin

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Jan 15th, 2015
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