Forecasting Automobile Sales Based on Economic Factors

Management Research News
Forecasting automobile sales

Syed Shahabuddin,
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Syed Shahabuddin, (2009) "Forecasting automobile sales", Management Research News, Vol. 32 Issue: 7,
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MRN
32,7
Forecasting automobile sales
Syed Shahabuddin
Department of Management Science and Operations Management,
Central Michigan University, Mount Pleasant, Michigan, USA
Abstract
670
Purpose – The purpose of this paper is to understand the behavior of the automotive industry
which is very critical to avoid major economic disruptions in the economy. To understand this
industry, one needs to understand its historical performance in relation to many economic factors that
may affect the industry.
Design/methodology/approach – Data about automobile sales (in dollars and in units) and many
economic and demographic variables are collected from a variety of sources. Automobile sales are
the dependent variable. However, the variable of automobile sales is divided into foreign and
domestic car makers. The data are regressed using Statistical Package for the Social Sciences (SPSS)
stepwise regression to obtain highly correlated variables.
Findings – The results indicate a strong relationship between the economic variables and foreign
car sales, but the relationship between the economic variables and domestic car sales is weak. The
domestic cars sales relationship to the other economic variables should be explored further to
determine possible causes for the weak correlation. One of the possible reasons could be that
domestic car makers use many incentives to influence sales, but data on incentives by model by year
are not available. The addition of this variable as a factor may improve correlation.
Practical implications – The results in this study could help the automobile companies better
understand their business, and the auto companies could use the results for possible strategic
decisions. In addition, legislatures in the impacted states could use the results to prepare for
fluctuations in the industry that would result in profound effects on the states in question.
Originality/value – This type of analysis is not standard, and the use of multiple economic
variables correlated with domestic and foreign car sales is unique. The study provides a basis for
further research.
Keywords Automotive industry, Sales forecasting, Economic conditions,
United States of America
Paper type Research paper
Introduction
Planning is an essential part of any business activity. However, business plans require
objectives that are based on sales targets, which in turn require demand forecasts.
Thus, forecasting is essential for planning. In addition, forecasts serve as input to
many other business decisions. Obviously, these decisions can be only as good as the
forecast results used to make them.
Sales forecasts are the foundation of planning. The forecasts enable an organization
to have an optimum inventory level, to make appropriate purchasing decisions and to
maintain efficient daily operations. All these affect the profits of the organization.
Therefore, forecasting is critical to profitability.
Demand planning involves the process of creating and affecting demand in the
future. Regardless of method chosen (promotion, etc.), forecasting helps assess the
impact of each possible decision upon demand. Demand management integrates all
aspect of an organization’s strengths and weaknesses. It includes not only planning
and forecasting but also coordinating all activities that affect customer demand, e.g.
Management Research News creating, shaping and fulfilling demand.
Vol. 32 No. 7, 2009
pp. 670-682 Demand forecasting requires projecting what will happen to demand in the future.
# Emerald Group Publishing Limited
0140-9174
Obviously, this requires statistical forecasting methods. Unfortunately, there is still a
DOI 10.1108/01409170910965260 gap between the statistical and economic techniques offered by forecasting and the
judgmental technique most executives use to forecast demand (Shahabuddin, 1987; Forecasting
Sanders, 1997). automobile sales
There are many techniques of forecasting, and they vary in complexity, ease of use,
and the amount of data needed. Among the many forecasting techniques, many
surveys (Sanders, 1997; Mahmoud, 1984) have found the judgmental technique to be
dominant. However, many studies (Armstrong, 1986; Dunn and Wright, 1991) have
found that the judgmental technique is less accurate, more biased, and more likely to 671
lead to poor forecasts than other techniques.
Instead of using a statistical forecasting technique, some companies use intention-
to-buy survey data to forecast sales. Consumer durable product manufacturers often
use purchase intention to forecast. The US government conducts surveys to forecast
spending on durable goods. The survey results are presumed to help predict future
sales. A study (Morwitz and Schmittlein, 1992; Morrison, 1979; Armstrong et al., 2002)
found a positive correlation between purchase intention and purchase behavior.
Theory suggests that the best predictor of future behavior is past behavior. However,
some social psychologists believe that a good predictor of what individuals will do is
their intention-to-perform the behavior (Fitzsimmon and Ajzen, 1975). Others suggest
that the intentions as predictors can work only under certain conditions (Armstrong,
1985). The conditions are
. that the event is critical in the life of the intender;
. that the intender has the ability to fulfill the plan;
. that conditions which affect the intention do not change; and
. that the intender reveals accurate intention.
These conditions may be satisfied in the short-term for expensive items.
In addition, the measurement of intention is key to the predictive ability of the data.
Studies ( Justin, 1996; Byrness, 1964) have shown that the type of questions used to ask
about intention to predict intention-to-buy. They found that most purchases are made
by those who have reported no plans to buy ( Justin, 1996). This may occur because
non-intenders are more likely to respond to surveys than intenders (Armstrong et al.,
2002).
Despite the lack of reliable data, researchers do try to relate purchase intention to
purchase behavior. Even though these attempts suggest that this relationship is useful,
there has been no research testing the predictive accuracy of intentions and past sales.
Lee et al. (1997) found very little relationship between buying intention and sales.
Due to the use of improper forecasting techniques, most forecasts give inaccurate
results. In addition to the use of inappropriate methods of forecasting, there are other
reasons for forecasting errors:
. Many forecasts rely on historical data without understanding the underlying
basis of the data. For example, an unexpected jump in sales becomes part of the
historical data instead of being considered as an outlier that may not happen
again.
. Forecasters tend to ignore likely changes that may influence the forecast, e.g.
increases in population, increases in competition, technological changes, etc. Any
or all of these factors may affect the organization’s sales and can easily be
included.
MRN . Using inappropriate computational methods for the data. Each type of data (e.g.
32,7 time series, cross-sectional data) requires different forecasting techniques.
Incorrect computational techniques cause errors in forecasts.
. Forecaster bias affects results and should be kept to a minimum. Individual
biases as a result of personal optimism or pessimism have no place in
forecasting. Bias increases error in forecasts.
672 Forecasters can choose from a variety of forecasting techniques. However, each
technique fits a limited set of situations, and thus methods appropriate to different
situations result in the highest accuracy. The accuracy of forecasts is further
complicated when a forecaster uses available data that is not consistent and is
statistically unsound.
The use of regression to establish a relationship between the dependent variable and
many independent variables is an appropriate method of forecasting. However, the
selection of the independent variables is a critical first step to accurate forecasts. Sales
of many durable consumer goods correlate strongly with major economic indicators.
However, forecasting is especially complicated due to the changing economic
factors among which any business operates. The economic factors include the Gross
National Product (GNP), the employment rate, the discount rate, the population growth
rate, and others. These economic factors have major effects on the manufacturers of
durable goods. Their relationships are complicated by the possibility that some of
these factors have lagged effects on the sales of durable products. In addition, sales of
many products are affected by seasonal fluctuation. All these economic factors are
relevant when forecasting durable goods, e.g. automobile, sales. Forecasts can be
further complicated by sales promotions and advertising activities. Therefore,
forecasters must be aware of these activities, although it is difficult to time their
occurrences and to track the numbers of these activities. In addition, forecasters must
consider activities that may cause problems in forecasting, and, if data are not available
on these activities, forecasters should at least be cognizant of the problems and take the
possibility of inaccurate results into consideration. Regardless of the difficulties,
appropriate statistical models with relevant variables make for the best results.
Durable goods
The cost of housing makes headlines, but transportation costs usually do not. The
average American spends almost as much on transportation as on housing. That is, an
average household spent 20 cents of every dollar on transportation, or $7,697 per
household on average per year in 2002 (Department of Labor, 2004) to get around.
Further, the average yearly transportation cost per household in some metropolitan
areas is as high as $7,961 (e.g. the average cost of transportation in Chicago is $8,129 a
year or 16.9 percent of total household expenditure).
Even though the share of automobile output in GNP has declined from 4 percent to
3.5 percent, it still accounts for 20 percent of the changes in GNP from quarter to
quarter. In addition to its direct effect on the economy, automobile sales have a large
spillover effect on the economy. Many other industries are directly or indirectly affected
by the auto industry. Further, consumer spending on purchase and maintenance of
automobiles accounts for 10 percent of the GNP.
According to Fulton et al. (2000), in 1996 dollars, automobile output increased 51
percent from 1987 to 2000 ($185.6 billion to $355.6 billion), and it contributed 3.5
percent of the US Gross Domestic Product (GDP) in 2000 while employing Forecasting
approximately 912,000 workers (McAlinden et al., 2003). automobile sales
An analysis of the sales of consumer durable goods in Britain found that the
demand for cars increased by 90 percent from 1970 to 1978 while the disposable income
rose by 21 percent in the same period (Pickering, 1978). Obviously, this analysis
indicates that income alone does not determine automobile demand. One possible
explanation could be that consumers’ durables are purchased not with current income 673
but are bought with savings or are financed. Further, consumer spending on durable
goods, especially automobiles, can be postponed to accommodate multiple factors as
the useful life of the goods can be extended through repair and maintenance. In
addition, ownership of more than one car is also likely. These uncertainties make
demand for durable consumer goods difficult and challenging to forecast. Fauvel and
Samson (1991) state that spending on durable goods in indeed the most volatile
component of total consumer expenditures.
In the USA, consumer durable goods purchases represent a huge market (e.g.
$3,769,235 million in 2003), but not much research has been done to accurately forecast
the sales of these products (Fauvel and Samson, 1991). The forecast work that has been
done relates to new products or intention-to-buy methods. A library and Google’s
Scholar search on ‘‘forecasting demand for durable goods’’ generated 45 items that
mostly dealt with new products. Data for durable goods are hard to find and may be
unreliable. However, due to its importance to consumption and the economy, forecasts
of sales of durable goods such as automobiles are critical.
The automobile industry plays a critical role in many economies. Demand for
automobiles also determines trend for travel and tourism, roads, and patterns of
housing (Abu-Eisheh and Mannering, 2002). That is, the more people own cars, the
more they have the ability to travel and, thus, the higher the demand for more and
better roads. The mobility of people also determines where and when they can locate
their houses beyond congested cities, resulting in the expansion of communities. All of
these activities expand economies and create jobs. In turn, the expansion puts pressure
on politicians, urban planners and traffic engineers to be cognizant of trends in
automobile ownership. The demand for automobiles is a critical consumer decision and
is influenced by sociological and economic factors, and automobile ownership affects
both developing and developed countries (Wu, 1965; Abu-Eisheh and Mannering,
2002).
Not much analytical work has been done relating to automobile sales, which
account for a large share of the durable goods market. Studies by Carlson and Umble
(1980) and Harris (1986) tried to forecast demand for automobiles. Carlson and Umble
(1980) predicted demand of automobile from 1979 to 1983 by segmenting automobile
into five classifications: sub-compact, compact, intermediate, standard and luxury. The
authors were trying to determine the relationship between the price of gasoline and
other major factors and the sale of cars. They found that the sales of compact cars grew
faster (from 35 to 45 percent) than the sales of other type of cars. They also established
that economic conditions were the major determinant of future automobile sales. The
study also found a relationship between the price of gasoline and the sales of cars.
However, the study was limited to two independent variables trying to forecast sales
during a difficult political period (the oil embargo). Harris (1986) also studied the
relationship of some economic variables to sales of automobiles and found a significant
relationship between demand and some economic variables.
MRN However, forecasting the overall market for automobiles – in units as well as in
32,7 dollars – is important to policy makers. Therefore, a comprehensive model relating
automobile sales to as many relevant economic variables as possible is likely to be the
most appropriate model (Carlson and Umble, 1980). Forecasting automobile sales
requires inclusive analysis that must consider personal and relevant national economic
factors to achieve good results. This study uses regression analysis to forecast
automobile sales in the US del (Carlson and Umble, 1980; Suits, 1958; Thompson and
674 Noordewier, 1992).
Model
A common approach to forecasting is fitting a mathematical model to past data. The
results are then used to forecast sales using the same explanatory variables that proved
to be statistically significant.
Automobile forecasting methodology has evolved from the simple time series
extrapolation used by Nerlove (1957) to the causal relationship models used by Dargay
and Gately (1999) and Prevedouros and Ann (1998). Many other models have been used
to establish causal relationships between car sales and other socioeconomic variables:
. The LR 799 model (Tanner, 1977, 1979). This model tried to predict cars per
person in Great Britain using a very few explanatory variables, e.g. GDP per
person and cost of operating a car. However, Tanner found that this model was
too complex and required a large amount of data.
. Autoregressive integrated moving average (ARIMA) (Garcia-Ferrer et al., 1997).
Garcia-Ferrer et al. used variations of ARIMA to forecast automobile sales in
order to judge the forecasting performance of different methods. They did not
find any one variation to be better than others. According to the authors,
‘‘Although there are differences in specific forecasting performance, all those
methods yield comparable overall performance’’. They found that ARIMA is
limited by its univariate nature and cannot fully account for the effects of
economic or social factors.
. The National Road Traffic Forecast (NRTF) models by Romilly (1998). The
NRTF models include household-based and explanatory models. Both models
use the combination of time series incorporating causal variables. Romilly found
the results encouraging but susceptible to small-sample bias.
. The regression model. This is a commonly used model that relates variables and
determines causal relationships. In a regression model, one can use statistical tests
to determine the significance of the model as well as the variables.
Data
To forecast automobile sales in the USA, relevant demographic and economic variables
were selected, and data were collected from many sources, e.g. Bureau of Labor
Statistics, Federal Reserve Bank and Moody’s economy.com, economagic.com, US
Commerce Department. Further, quarterly data from 1959 to 2006 were amassed on
total automobile sales in units and in dollars, and automobile sales data were also
collected on domestic cars and trucks as well as foreign brand cars. The variables and
equations used are listed below. The independent variables are durable industrial
demand, durable personal consumption, discount rate, non-durable industrial goods
demand, personal consumption, GNP, GDP, population, leading economic indicators,
M1 (money that is liquid), M2 (M1 plus short-term invested assets), and M3 ( M2 and all Forecasting
institutional funds). All these variables are assumed to affect the purchase of automobile sales
automobiles and other consumer goods. However, some economic variables may make
take a long time to show their effects. Thus, in order to find whether variables have lag
relationships, variables were lagged one quarter. To understand whether any or all of
these variables can predict automobile sales in units or value of shipment (in dollars),
multiple regression method was used.
Two models were tested:
675
A model without a lag:
(1) Yt ¼ bo þ b1 X1,t þ b2 X2, t þ b3 X3, t þ þb11 X11, t þb12 X12,t
and, a model with a lag:
(2) Yt v ¼ bo þ b1 X1, t1 þb2 X2, t1 þ b 3 X3, t1 þ þ b11 X11,t1þ b12 X12, t1
where Y is the sales of cars in units or in dollar value of automobile shipment each
quarter and X’s are independent variables:
X1 Durable industrial demand
X2 Durable personal consumption
X3 Population
X4 Discount rate
X5 Non-durable industrial goods
X6 Non-durable personal consumption
X7 GNP
X8 GDP
X9 Leading economic indicators
X10 M1 – Money in cash
X11 M2-M1 plus short-term institutional fund
X12 M3-M2 and institutional fund
Analyses
Data on automobile sales in units and in dollars and all the twelve independent
variables were regressed using Statistical Package for the Social Sciences (SPSS).
Multiple regression models with stepwise method were run.
Regressing the 12 unlagged independent variables with total (domestic and foreign)
automobile demand in units, the equation with significant variables is:
Y ¼11192þ2:95X1 þ2:48X2 þ0:08X3 28:84X4 þ0:3X6 1:8X8 þ11:72X9 1:69X10

t ð8:45Þð2:5Þ ð2:71Þ ð8:02Þ ð3:3Þ ð3:8Þ ð6:4Þ ð4:57Þ ð4:6Þ
2
R ¼ 0:75 and F ¼ 30 Durban-Watson ¼ dw¼d ¼1:56k¼5;n¼191
The selected variables have significant t values, and the R2 of 0.75 indicates that these
variables (equation) can explain the automobile sales in units with 75 percent accuracy.
In other words, 75 percent of the automobile sales in units can be explained by this
equation. Durban-Watson statistic is inconclusive about serial correlation and analysis
of errors indicates no heteroscedasticity.
When demand for domestic cars (in units) alone is regressed with the 12 unlagged
independent variables, the equation with significant variables is:
MRN Y ¼ 8606 þ 7:43 X1 þ 0:22 X2 0:075 X3 47:31 X4 1:71 X8
32,7 t ð7:98Þ ð7:64Þ ð4:05Þ ð10:01Þ ð7:57Þ ð9:81Þ
2
R ¼ 0:74 and F ¼ 44 Durban-Watson ¼ dw ¼ 1:70 k ¼ 5; n ¼ 191
The variables have significant t values, and the R2 of 0.74 indicates that this equation can
predict the sales in units with 74 percent accuracy. In other words, 74 percent of the
676 automobile sales in units can be explained by this equation. Durban-Watson statistic is
inconclusive about serial correlation and analysis of errors indicates no heteroscedasticity
When demand for foreign cars (in units) alone is regressed with the 12 unlagged
independent variables, the equation with significant variables is:
Y ¼ 1172:7 0:85 X1 þ 25:27 X4 0:195 X7 þ 6:83 X9 þ 0:23 X12

t ð15:5Þ ð5Þ ð13:6Þ ð14:3Þ ð18Þ ð14:06Þ
R2 ¼ 0:91 and F ¼ 186 Durban-Watson ¼ dw ¼ 1:16 k ¼ 5; n ¼ 191
All the variables have significant t values, and the R2 of 0.91 indicates that this
equation can predict with 91 percent accuracy the sales. This indicates that the demand
for foreign cars (in units) is highly correlated with the significant variables. Durban-
Watson statistic is inconclusive about serial correlation and analysis of errors indicates
no heteroscedasticity
Regressing the unit sales of trucks (from 1976 to 2006) only with unlagged
variables, the equation with significant variables is:
Y ¼ 768 þ 1:34 X1 þ 3:93 X2 32:4 X4 0:454 X11

t ð19:61Þð4:41Þ ð22:13Þ ð12:71Þ ð14:8Þ
2
R ¼ 0:99 and F ¼ 2;036 Durban-Watson ¼ dw ¼ 1:2 k ¼ 4; n ¼ 123
All the variables have significant t values, and the R2 of 0.99 indicates that this
equation can explain with 99 percent accuracy the sales of trucks. Durban-Watson
statistic is inconclusive about serial correlation and analysis of errors indicates no
heteroscedasticity
In order to determine whether the value (in dollars) of automobiles sold could
provide high predictive results, the sale of automobiles in dollars was regressed with
the same 12 unlagged independent variables. The analyses of the sales value of
automobile with the unlagged independent variables resulted in:
Y ¼ 4432 þ 53:45 X1 þ 181:38 X2 9:08 X12

t ð4:34Þ ð5:7Þ ð20:61Þ ð11:99Þ
R2 ¼ 0:996 and F ¼ 5;955 Durban-Watson ¼ dw ¼ 1:30 k ¼ 4; n ¼ 191
The four variables have significant t values, and the R2 of 0.996 indicates that this
equation can predict with 99.6 percent accuracy the sales of total value of automobile
shipment. Both R2 and F are very significant and indicate high predictive power.
Durban-Watson statistic is inconclusive about serial correlation and analysis of errors
indicates no heteroscedasticity.
When the sales of automobile in dollars is regressed with independent variables Forecasting
lagged one quarter, the resulting equation is: automobile sales
Y ¼ 1235 þ 213 X3 9:72 X12
t ð2:4Þ ð24:92Þ ð10:3Þ
2
R ¼ 0:994 and F ¼ 7; 553 Durban-Watson ¼ dw ¼ 10:766 k ¼ 2; n ¼ 190
677
2
All variables have significant t values, and the equation has an R of 0.994, which
indicates that this equation can predict with 99.4 percent accuracy the sales of
automobile in dollar. In other words, 99.4 percent of the automobile sales in dollar can
be explained by the equation. Durban-Watson statistic is inconclusive about serial
correlation and analysis of errors indicates no heteroscedasticity
By lagging the variables by one quarter and regressing the total (domestic and
foreign) units of automobile sales, the equation is:
Y ¼ 10776 þ 3:18 X1 þ 0:298 X2 þ 0:08 X3 22:53 X4 þ 2:25 X6 1:77 X8

þ 9:62 X9 1:53 X10
t ð7:81Þ ð2:61Þ ð3:6Þ ð7:7Þ ð2:5Þ ð2:4Þ ð6:1Þ ð3:7Þ ð3:9Þ
The variables have significant t values, but the R2 of 0.72 not a high value. The
equation can explain the automobile sale in units with only 72 percent accuracy.
Durban-Watson statistic is inconclusive about serial correlation and analysis of errors
indicates no heteroscedasticity
Regressing the unit sales of just the domestic cars with variables lagged one
quarter, the equation is
Y ¼ 8470 þ 7:5 X1 þ 0:074 X3 53:34 X4 1:5 X8 0:93 X10 þ 0:14 X12

t ð6:48Þ ð5:01Þ ð7:5Þ ð7:5Þ ð5:52Þ ð4:30Þ ð2:18Þ
R2 ¼ 0:73 and F ¼ 35:25 Durban-Watson ¼ dw ¼ 1:70 k ¼ 6; n ¼ 190
These variables have significant t values, but, again, the R2 of 0.73 is not a high value, and
the equation can predict with only 73 percent accuracy. Durban-Watson statistic is
inconclusive about serial correlation and analysis of errors indicates no heteroscedasticity
Regressing the unit sales of foreign cars with variables lagged one quarter, the
equation is
Y ¼ 904 þ 1:66 X1 þ 20:1 X4 0:235 X7 þ 4:13 X9 þ 0:238 X12

t ð9:3Þ ð4:2Þ ð8:67Þ ð15:55Þ ð6:4Þ ð13:45Þ
Here the variables have significant t values, and the R2 of 0.91 indicates that this
equation can predict with 91 percent accuracy the sales of foreign cars. Durban-Watson
heteroscedasticity.
MRN When regressing the unit sales of trucks (from 1976 to 2006) with variables lagged
32,7 one quarter, the equation is
Y ¼ 345 þ 2:5 X2 36:62 X4 þ 0:192 X8 0:367 X11

t ð1:77Þ ð4:8Þ ð10:46Þ ð2:92Þ ð9:4Þ
2
R ¼ 0:98 and F ¼ 1; 070 Durban-Watson ¼ dw ¼ 1:5 k ¼ 4; n ¼ 122
678
The variables again have significant t values, and the R2 of 0.98 indicates that this
equation can predict with 98 percent accuracy the sales of trucks. Durban-Watson
heteroscedasticity
The results of all the models are summarized in Table I.
As can be seen, foreign cars sales (lagged or unlagged) has a high correlation with
significant variables, which means that it can be predicted with high accuracy
compared to domestic cars. Domestic cars are harder to predict with the same
independent variables. This obviously indicates that domestic cars sales are hard to
predict due to many other factors, such as discounts, quality problem, and amount of
advertising, are affecting sales. In contrast, demand for trucks can be predicted with
high accuracy. However, the equation for trucks is based on data from 1976 to 2006, so
it cannot be said with certainty that the future demand for trucks can be predicted with
such a high accuracy, because the novelty and the competitive pressure of foreign car
manufacturers will affect the demand for domestic trucks as well. As a result, the
domestic truck market may eventually show the same weak relationship with the
significant independent variables as the domestic cars.
Conclusion
The automobile industry is a major component of the US economy. Especially
in states where automobiles dominate the manufacturing sector, decreases in
automobile sales can have dire economic consequences for the state and its people.
Therefore, it is critical that the automobile industry plan its business carefully and to
be aware of the upturns and downturns that might be coming so as to prevent or
ameliorate any economic shock those changes might have on the country’s or the
state’s economy.
To accomplish this, automobile manufacturers and dealers must carefully develop
their business plans. For a plan to be effective, it must be reliable. The reliability of a
plan increases if it is based on realistic goals. The goals can be realistic only if they are
based on an analysis of the conditions affecting the business. Such analysis requires
use of a forecasting method that allows the incorporation of as many conditions as
feasible that might affect the business and that can be used to predict demand.
Unlagged Lagged (one quarter)

R2 F R2 F
Total units sold 0.75 30 0.72 25

Domestic cars 0.74 44 0.73 35.25
Foreign cars 0.91 186 0.91 175
Truck 0.99 2,036 0.98 1,070
Table I. Value of shipment 0.996 5,955 0.994 7,553
Regression allows for such analysis. Therefore, to forecast automobile sales, twelve Forecasting
possible economic factors were analyzed to establish a relationship between the automobile sales
variables and the automobile sales. The data were analyzed using regression without a
lag and with a one quarter lag. Using the t-test, some variables were dropped due to
their insignificant relationship. Total automobile sales (domestic and foreign car sales)
in units, domestic car sales, foreign car sales, truck, and value (in dollars) of automobile
shipment were analyzed. Relationships of some of the independent variables with total
sales in dollars, foreign cars, and trucks were highly correlated with both lagged and
679
unlagged independent variables.
Based on the analysis, foreign car sales also proved to be highly correlated to the
economic variables, while domestic car and total car sales were not significant and had
a very weak relationship. Therefore, it can be safely concluded that it is possible to
predict foreign car sales, truck sales, and the total sales of automobile in dollar with
high degree of confidence. However, these results and the domestic car sales can
further be improved by segmenting cars and trucks by size and price range.
Some might counter that using current economic indicators to forecast current sales
cannot be theoretically supported. However, the purpose of analyzing the relationship
of sales of cars and trucks with both lagged and unlagged variables was to find
whether current information would indicate close relationships. Apparently, both
lagged and unlagged indicated the same strength of relationship with the dependent
variables. In other words, the strength of the relationships did not improve or
deteriorate depending on whether variables were lagged or not.
In addition, some independent variables show high correlation with each other, e.g.
GNP and personal consumption. However, removing one or two significant
independent variables did not change the strength of the correlation significantly;
therefore, they were not eliminated in the study.
This study has correlated many economic and demographic independent variables
with the sales of automobiles in the USA. The results and relationships can further be
improved by the substitution of or the inclusion of subsets of the variables such as
analysis of each automobile company individually, of each model car, and of vehicles in
different price ranges. However, such ses are not possible for this researcher without
the cooperation of each automobile manufacturer, as the required data is not available
publicly. For now, this study can be used as a predictive model of the overall
automobile industry and as the basis for further study.
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About the author

Syed Shahabuddin, Professor of Management Science and Operations Management, received his
PhD from the University of Missouri, Columbia, Missouri. He has been with Central Michigan
University since 1980. Before joining Central Michigan University, he taught at the University of
Notre Dame, South Bend, Indiana. He has served as chairman of two departments at Central
Michigan University, and was a Fulbright scholar. Dr Shahabuddin has published more than 50
articles and two books, entitled Management Science and Programming in Basic, and a third
book, Business Statistics, to be published shortly. He has chaired many sessions and presented
many papers in the Decision Science Institute and the INFORMS national meetings. Syed
Shahabuddin can be contacted at: shaha1s@cmich.edu
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Y ¼ 345 þ 2:5 X2 36:62 X4 þ 0:192 X8 0:367 X11

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