Abstract
M.Comm.
There are many different opinions among economists around the validity and existence of the business cycle. It varies from the total nullification of the existence of a business cycle to the founding of a working definition in this regard. One of the characteristics of the South African economy and similar capitalist systems is an unstable business environment. Periods of economic growth are followed by periods of economic recession when employment, production, prices, profits and general economic welfare are in decline. These phases are known as the business cycle. Economists differ from the early days with relation to the factors that led to changes in total economic activity. Classical economists focussed on the supply side factors as the main cause of the business cycle. John Keynes criticized the early models and presented a model in which change in output is largely dependent on changes in aggregate demand. The latest theory is known as the Real Business Cycle and includes both the supply and demand side factors. The emphasis is, however, on the supply side and argues that changes in the aggregate supply are the main determining factor in economic contraction or expansion.
Between 1946 and 1996, 14 complete cycles occurred in the South African economy. The total cycle comprises of the first upward phase, the second upward phase, the first downward phase and the second downward phase. Specific indicators are present during each phase. Car sales are determined by demand. The demand include consumer preference, income, the price of competing or similar goods, expectations of the consumer, availability of credit, consumer confidence as well as the price of the product. The single most important influence on car sales is political stability, economic growth and interest rates. These factors determine the extent of consumer confidence. The occurrence of business cycles in the South African economy and the cyclical tendency of car sales are largely in tandem. Of the 14 upward and onward phases since 1960, 12 phases show positive correlations. This means that car sales represent an adequate barometer with regard to the state of economic activity as a whole in the country. It is also an effective barometer regarding expected future developments on the economic front. The state of the business cycle can be of tremendous value regarding planning in the motor manufacturing industry. The specific phase in which the business cycle is, will provide a sound indication of what kind of success might be anticipated with regard to future sales.