Automotive industry crisis of 2008–2009
Encyclopedia
The automotive industry crisis of 2008–2010 was a part of a global financial downturn. The crisis affected European and Asian automobile manufacturers, but it was primarily felt in the American automobile manufacturing industry
. The downturn also affected Canada by virtue of the Automotive Products Trade Agreement
.
The automotive industry was weakened by a substantial increase in the prices of automotive fuels linked to the 2003-2008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup truck
s which have low fuel economy
. The popularity and relatively high profit margins of these vehicles had encouraged the American "Big Three" automakers, General Motors
, Ford, and Chrysler
to make them their primary focus. With fewer fuel-efficient models to offer to consumers, sales began to slide. By 2008, the situation had turned critical as the credit crunch placed pressure on the prices of raw material
s.
Car companies from Asia
, Europe
, North America
, and elsewhere have implemented creative marketing strategies to entice reluctant consumers as most experienced double-digit percentage declines in sales. Major manufacturers, including the Big Three and Toyota offered substantial discounts across their lineups. The Big Three faced criticism for their lineups, which were seen to be irresponsible in light of rising fuel prices. North American consumers turned to smaller, cheaper, more fuel-efficient imports from Japan
and Europe
. However, many of the vehicles perceived to be foreign were actually "transplants," foreign cars manufactured or assembled in the United States, at lower cost than true imports.
reported unprecedented monthly sales. (See also Automobile industry in China
)
reduced interest rates on automotive loans in February 2009.
For the first few months of 2009, Tata Motors
conducted a widespread marketing campaign heralding the debut of the Tata Nano
. Billed as "the people's car," the manufacturer hopes the low cost will encourage customers to purchase the vehicle despite the ongoing credit crisis.
With high gas prices and a weak US economy in the summer of 2008, Toyota reported a double-digit decline in sales for the month of June, similar to figures reported by the Detroit Big Three
. For Toyota, these were attributed mainly to slow sales of its Tundra pickup
, as well as shortages of its fuel-efficient vehicles such as the Prius
, Corolla
and Yaris
. In response, the company has announced plans to idle its truck plants, while shifting production at other facilities to manufacture in-demand vehicles. On December 22, 2008, Toyota declared that it expected the first time loss in 70 years in its core vehicle-making business. Loss of $1.7 billion, in its group operating revenue, would be its first operating loss since 1938 (Company was founded in 1937). Toyota saw its sales drop 33.9 percent and Honda Motor by 31.6 percent.
On 5 December 2008 Honda Motor Company
announced that it would be exiting Formula One
race with immediate effect due to the 2008 economic crisis and are looking to sell the team. Honda has predicted that there may be reductions among part-time and contract staff. Upper management bonuses would also be reassessed and directors in the company will take a 10 percent pay cut effective January 2009.
Nissan
, another leading Japanese car manufacturer, announced that it also would be slashing production and will reduce its output by 80,000 vehicles in the first few months of 2009.
In December 2008, Suzuki, Japan's fourth biggest car manufacturer, announced that it will cut production in Japan by about 30,000 units due to falling demand. The company is expected to face its first profit drop in eight years for financial year ending in March 2009.
On 16 December 2008, Fuji Heavy Industries
, Japan
's largest transport equipment manufacturer and the maker of Subaru
brand cars, announced that it would exiting World Rally Championship
at the end of the 2008 championship
, "this sudden decision was in response to the widespread economic downturn that is affecting the entire automotive industry", and came one day after competitor Suzuki
exited the sport.
Reported in Bloomberg on Dec 23, 2008, that Mitsubishi Motors is to widen production cuts on falling demand. The Japanese maker of Outlander sport-utility vehicles, will scrap the night shifts at two domestic factories as the deepening global recession saps auto demand. The carmaker will halt the night shift at its Mizushima plant, excluding the minicar line. Nighttime work at the Okazaki factory will stop from Feb. 2. The cuts are part of Mitsubishi's move to reduce planned output by 110,000 vehicles in the year ending March because of tumbling sales in Japan, the U.S. and Europe. Japan's vehicle sales may fall to the lowest in 31 years in 2009, according to the country's automobile manufacturers association. Mitsubishi will also halt production of passenger cars on every Friday next month at the Mizushima factory in western Japan. The Okazaki plant in central Japan will close every Saturday in January and for another five days.
Toyota on Dec 22, 2008 slashed profit forecasts amid a sales slump. The Japanese automaker, often held up with Honda as a success story for the rest of the auto industry to follow, said it expected a slim profit margin of US$555 million for the year ending in March 2009. Toyota had originally been projecting a massive profit of $13.9 billion for that period. Their sales in the United States were down 34 per cent and were down 34 per cent in Europe as well. They expected a loss which would be the equivalent of about $2 billion (CDN)." Toyota President Katsuaki Watanabe said the impact on the company from the struggling global economy has been "faster, wider and deeper than expected." "The change that has hit the world economy is of a critical scale that comes once in a hundred years," Watanabe said, speaking in Nagoya.
Facing its first loss in nearly sixty years, Toyota sought loans from the Japanese government.
On November 4, 2009, Toyota announced its immediate withdrawal from Formula One, ending the team's involvement in the sport after eight seasons. See also 2009–2010 Toyota vehicle recalls
.
South Korean automakers have been generally much more profitable than their US and Japanese counterparts, recording strong growth even in depressed markets such as the United States. Despite a global economic slowdown, Hyundai-Kia successfully managed to overtake Honda Motor in 2008 as the world's 5th largest automaker, climbing eight rankings in less than a decade. Hyundai-Kia continued its rapid success in 2009, when only a year after overtaking Honda, it surpassed Ford Motor as the world's 4th largest automaker.
Hyundai-Kia's continued success was unusual at a time when most automakers saw their sales falling sharply, with leading automaker GM
even filing for bankruptcy. Hyundai-Kia took significant advantage of the prolonged automotive crisis by producing affordable yet high quality and well designed vehicles. Rapid globalization has seen state of the art factories being built in several countries including Slovakia
, the United States
and China
. The manufacturing facilities have been geared-up to build products that are designed and engineered for local markets. The Kia cee'd
is a leading example, being designed, developed and engineered in Germany
and built in Slovakia.
Unlike others, this crisis turned into an opportunity for many South Korean automakers. Korean automaker Hyundai
offered customers who have lost their jobs to return a new-car purchase for a refund. The continued growth and success is attributable to the country's fuel-efficient and well-equipped, yet affordable cars with generous warranties, such as the Kia Picanto
, Kia cee'd
and Hyundai i30
, which attracted global consumers at a time of severe economic recession, rapidly rising oil prices and increasing environmental concerns. South Korean automakers therefore had a competitive advantage against expensive luxury vehicles and SUVs from US, Japanese and German automakers.
During the fourth quarter of 2008 to the first quarter of 2009, which was the height of this automotive crisis, the extremely weak South Korean won
, especially against the US dollar and Japanese yen
, significantly boosted the price competitiveness of South Korean exports in key markets. Another factor that helped maintain this momentum was an increasingly improving brand awareness, attributable to the introduction of the country's own luxury vehicles such as the Hyundai Genesis
and Hyundai Genesis Coupe
, which received highly positive awards in the press and reviews. Hyundai's brand grew by 9% in 2008, surpassing Porsche
and Ferrari
, while it used the Super Bowl
football broadcast, the world's most expensive commercial air time, to promote the Hyundai brand in the United States.
Nonetheless, South Korean automakers were not completely immune to this automotive crisis and in December 2008 Hyundai Motor Company
had begun reducing production at plants in the U.S., China, Slovakia, India and Turkey because of sluggish demand. The company missed an earlier projection of 4.8 million units for 2008 and announced a freeze of wages for administrative workers and shortened factory operations as demand weakens amid a global financial crisis.
South Korea's fourth largest automaker, SsangYong Motor
, owned by the Chinese automobile manufacturer SAIC (Shanghai Automotive Industry Corporation), is the worst affected company in this crisis as it manufactures mainly heavy petroleum consuming SUVs. The carmaker recorded its fourth straight quarterly losses by the end of 2008 with red ink of $20.8 million in the third quarter. Also during the July to September period, sales dropped 63 percent to 3,835 vehicles. Its production lines have been idle since Dec. 17 as part of efforts to reduce its inventory. The automaker has halted production twice previously this year. In December 2008, SAIC gave an ultimatum to the SsangYong union to accept its restructuring plan or face the parent company's withdrawal, which, if implemented, would mean certain bankruptcy.
However, the South Korean Ministry of Knowledge Economy said that there will be no liquidity provision at the government level for five automakers - Hyundai, Kia, GM Daewoo, Samsung Renault
and Ssangyong."We have no plans to inject liquidity into the carmakers," a ministry official said. "It has been repeatedly made clear."
where car sales had also drastically decreased, consideration was being given to financial support for the automotive industry, particularly in France
, Germany
and Italy
. German Foreign Minister Frank-Walter Steinmeier
and Jean-Claude Juncker
, Luxembourg's Prime Minister and head of the Eurogroup of single currency nations, discussed the possibility of a common rescue package to be agreed by all the EU member states.
predicted sales volumes would fall by at least 10% in 2009, following a 17% drop in the current quarter. As a result, it planned to cut 2,700 jobs. On the 11 February 2009, PSA announced it would cut 11,000 jobs world wide, however none of these are expected to be in France.
Renault
announced a net profit for 2008 of 599 million euros for the 2008 financial year. This was a 78% drop in profits from the 2007 financial year. European sales fell 4% and world wide sales 7%, forcing Renault to abandon their 2009 growth targets. This however made Renault one of the few car makers to return a profit. Renault consistently struggled to return profits in the 1990s.
and German Chancellor Angela Merkel
agreed to support the crisis-stricken automobile industry in France and Germany. Detailed plans would be announced shortly.
On December 16, 2008 Fiat
in Italy
announced that it will extend its temporary plant closures in Italy by a month; the Pomigliano d'Arco, the main plant for its Alfa Romeo
cars will be shut for four weeks. However, on February 20, 2009, reacting to actions by the Italian government to stimulate the automotive sector, Fiat said its plant closures would be curtailed. The company also forecast that sales in Europe will drop by 14 percent in 2009.
On January 20, 2009 the company announced that it had entered into an agreement, subject to regulatory approvals, to acquire 35% of Chrysler. Fiat's 35% stake in Chrysler would not involve a conventional sale of shares, but would be achieved in return for allowing Chrysler to utilise some of Fiat's fuel efficient technologies (Chrysler's February submission to the US government included a commitment to produce nine Fiat-derived vehicles over a four-year period starting in 2010, including four hybrid-electric and battery-electric models). Chrysler would be accorded access to Fiat's sales outlets in Europe, while in reciprocation Fiat will also gain access to Chrysler's dealership network in the US, where it is predicted smaller models such as the Fiat Grande Punto
may be successful. In the past, Fiat has had trouble gaining a foothold in the American markets, whilst Chrysler has never held a strong market share in Europe since it sold its UK based Rootes Group and France
based Simca
to PSA Peugeot Citroen
in the 1980s
.
On January 22, 2009, Fiat announced a 19% drop in revenues in the last three months of 2008. Italian Prime Minister Silvio Berlusconi
said the government would meet to discuss the issue.
, which started from United States
. Production of passenger cars dropped from 1,470,000 units in 2008 to just 597,000 units in 2009. Lorry production fell from 256,000 to 91,000 in the same period.
In late 2008, the Russian government introduced protectionistic measures, worth $5 billion, to improve the situation in the industry. This included $2 billion's worth of bailouts for troubled companies and $3 billion credits to buyers of Russian cars. Prime minister Vladimir Putin
described the move as vital in order to save jobs. The tariffs for imported foreign cars and trucks were increased to a minimum 50% and 100%, respectively. The tariffs are linked to engine size of the vehicle. The increased duties led to protests in Russian cities, most notably in Vladivostok
, as the import of Japanese cars is an important sector of the city's economy.
The most efficient anti-crisis measure executed by the Russian government was the introduction of a car scrappage scheme in March 2010. Under the scheme, buyers of new cars can receive a subsidy which is 600,000 rubles ($20,000) at maximum. Sales of Russia's largest carmaker Avtovaz
sales doubled in the second quarter of 2010 as a result, and the company returned to profit.
(a subsidiary of the Volkswagen Group
) cut production at its Martorell
plant by 5% on the 7 October 2008, due to a fall in general sales. This affected 750 employees and continued until July 2009. SEAT is still continuing to install solar panels in its Martorell plant near Barcelona
.
and Saab
, with support amounting to SEK
28 billion (3.5 billion USD). The two companies had requested assistance, faced with the financial difficulties of their U.S. owners Ford and General Motors. The plan consists of a maximum of SEK 20 billion in credit guarantees, and up to SEK 5 billion in rescue loans. On the 18 February 2009 General Motors warned Saab
may fail within ten days, should the Swedish government not intervene. On 20 February, an administrator was appointed to restructure Saab and assist in it becoming independent of its troubled parent General Motors. General Motors have confirmed their intention to sell their Swedish subsidiary, Saab. Of Sweden's 9 million population, 140,000 work in the car industry and they account for 15% of exports.
, now owned by Tata Motors
, was seeking a $1.5 billion loan from the government to cope with the credit crisis.
On December 22, 2008, Tata motors
declared that it would inject "tens of millions" of pounds for Jaguar Land Rover company it had acquired from Ford Motor Corporation in early 2008. British Prime Minister Gordon Brown
also stated the intention to help out car industry in U.K.
On the 8 January 2009, Nissan UK
announced it was to shed 1200 jobs from its Washington, Tyne and Wear
factory in North East England
due to the automotive industry crisis of 2008. This announcement was made, despite the plant recently being hailed as the most efficient in Europe.
General Motors UK subsidiary Vauxhall Motors
, whose brand is the second most popular in the UK has two bases in the UK, a factory in Ellesmere Port
, Cheshire
and their headquarters and design and development centre in Luton
, Bedfordshire
. It is as yet unknown whether these plants will be affected by the GM cutbacks. The group along with their sister subsidiary, Opel
of Germany
was supposed to be sold in their majority to Magna International
, an Austro
-Canadian
company who supply many parts to large car companies, but General Motors cancelled the transaction.
UK bus manufacturer Optare
received an order from Arriva
in November 2008 for the manufacture of 53 buses in a contract worth over £6million, securing 500 jobs at the company's Assembly factory in Cross Gates, Leeds
, West Yorkshire
and the parts centre in Cumbernauld
, North Lanarkshire
.
UK Van and commercial vehicle manufacturer LDV asked the UK government for a £30 million bridging loan to facilitate a management buyout of the group. On the same day this was refused. LDV has since said it has a viable future and intends to become the first volume producer of electric vans should the management buyout take place. Production at LDV's factory in Birmingham
, West Midlands
(where it employs 850 staff) has been suspended since December 2008 due to falling demand. Eventually, no buyout materialised and the LDV was declared defunct on 15 October 2009
and later the North American Free Trade Agreement
(NAFTA), and is in similar trouble.
and Chrysler
, while Ford secured a line of credit in case they require a bridging loan in the near future. Car sales declined in the United States, affecting both US based and foreign car manufacturers. The bridging loans lead to greater scrutiny of the US automotive industry in addition to criticism of their product range, product quality, high labour wages, job bank programs, and healthcare and retirement benefits.
While the "Big Three
" U.S. market share declined from 70% in 1998 to 53% in 2008, global volume increased particularly in Asia and Europe. The U.S. auto industry was profitable in every year since 1955, except those years following U.S. recessions and involvement in wars. U.S. auto industry profits suffered from 1971-73 during the Vietnam War
, during the recession in the late 1970s which impacted auto industry profits from 1981–83, during and after the Gulf War when industry profits declined from 1991–93, and during the Iraq War from 2001–03 and 2006-09. During these periods the companies incurred much legacy debt.
Facing financial losses, the Big Three have idled many factories and drastically reduced employment levels. GM spun off many of its employees in certain divisions into independent companies, including American Axle
in 1994 and Delphi
in 1999. Ford spun off Visteon
in 2000. The spin-offs and other parts makers have shared Detroit's downturns, as have the U.S.-owned plants in Canada. Altogether the parts makers employ 416,000 people in the U.S. and Canada. General Motors alone is estimated to have lost $51 billion in the three years before the 2008 financial crisis began. GM is set to reacquire factories from its Delphi subsidiary during its Chapter 11 restructing.
The 2005 Harbour Report estimated that Toyota's lead in benefits cost advantage amounted to $350 US to $500 US per vehicle over North American manufacturers. The United Auto Workers
agreed to a two-tier wage in recent 2007 negotiations, something which the Canadian Auto Workers
has so far refused. Jared Bernstein
, the chief economist of Vice President Joe Biden
, noted in an interview with WWJ-AM in Detroit that most of the 2007 contract concessions apply only to new hires, while older workers "still benefit from contracts that were signed a long time ago." However, only 30% of parts used by the Big Three employ union labor, with 70% sourced from non-union labor.
Delphi
, which was spun off from GM in 1999, filed for Chapter 11 bankruptcy after the UAW refused to cut their wages and GM is expected to be liable for a $7 billion shortfall.
In order to improve profits, the Detroit automakers made agreements with unions to reduce wages while making pension and health care commitments. GM, for instance, at one time picked up the entire cost of funding health insurance premiums of its employees, their survivors and GM retirees, as the US did not have a universal health care system. With most of these plans chronically underfunded in the late 1990s, the companies have tried to provide retirement packages to older workers, and made agreements with the UAW to transfer pension obligations to an independent trust. Nonetheless, non-unionized Japanese automakers, with their younger American workforces (and far fewer American retirees) will continue to enjoy a cost advantage.
Despite the history of their marques, many long running cars have been discontinued or relegated to fleet sales, as GM
, Ford and DaimlerChrysler
shifted away resources from midsize and compact cars to lead the "SUV Craze". Since the late 1990s, over half of their profits have come from light trucks and SUVs
, while they often could not break even on compact cars unless the buyer chose options. Ron Harbour, in releasing the Oliver Wyman’s 2008 Harbour Report, stated that many small “econobox
es” of the past acted as loss leaders, but were designed to bring customers to the brand in the hopes they would stay loyal and move up to more profitable models. The report estimated that an automaker needed to sell ten small cars to make the same profit as one big vehicle, and that they had to produce small and mid-size cars profitably to succeed, something that the Detroit three have not yet done. SUV sales peaked in 1999 but have not returned to that level ever since, due to higher gas prices.
In the case of Chrysler Corporation, compact and mid-sized vehicles such as the Dodge Neon
, Dodge Stratus
and Chrysler Cirrus
were produced profitably during the 1990s concurrently with more profitable larger vehicles. However, following the DaimlerChrysler
merger in 1998, there was a major cost-cutting operation at the company. The result was the lowering of benchmarked standards for Chrysler to aim at. This directly led to the following in Chrysler's case. There was realignment of the Chrysler Group model range with those of GM and Ford (i.e. a skew towards larger vehicles).
The Detroit Big Three had been slower to bring new vehicles to the market compared with foreign competitors. The Big Three have battled initial quality perceptions in spite of reports showing improvements.
Falling sales resulted in the Big Three's plants operating below capacity. GM's plants were operating at 85% in November 2005, well below the plants of its Asian competitors, and was only maintained by relying on cash incentives and subsidized leases. Rebates, employee pricing, and 0% financing boosted sales but drained the automaker's cash reserves. The subprime mortgage crisis
and high oil prices of 2008 caused the popularity of once best-selling trucks and SUVs to plummet. Automakers were forced to continue offering heavy incentives to help clear excess inventory. Due to the declining residual value of their vehicles, Chrysler and GM stopped offering leases on a most of their vehicles in 2008.
In September, 2008 the Big Three
asked for $50 billion to pay for health care expenses and avoid bankruptcy and ensuing layoffs, and Congress worked out a 25$ billion loan. By December, President Bush had agreed to an emergency bailout of $17.4 billion to be distributed by the next administration in January and February. In early 2009, the prospect of avoiding bankruptcy by General Motors and Chrysler continued to wane as new financial information about the scale of the 2008 losses came in. Ultimately, poor management and business practices forced Chrysler and General Motors into bankruptcy. Chrysler filed for chapter 11 bankruptcy protection on May 1, 2009 followed by General Motors a month later.
On June 2, GM Motors announced the sale of the Hummer
brand of off-road vehicles to Sichuan Tengzhong Heavy Industrial Machinery Company Ltd., a machinery company in western China, a deal which later fell through.
, Al Gore
criticized the Big Three. "They keep trying to sell large, inefficient gas-guzzlers even though fewer and fewer people are buying them." For example, Japan requires autos to achieve 45 miles per US gallon (19.1 km/L) of gasoline and China requires 35 mpgU.S. (14.9 km/L). The European Union
requires 47 mpgU.S. (20 km/L) by 2012. By comparison, U.S. autos are required to achieve only 25 mpgU.S. (10.6 km/L) presently. Other nations have adopted standards that are increasing mpg requirements in the future. When California
raised its own standards, the auto companies sued.
The Big Three received funding for a $25 billion government loan during October 2008 to help them re-tool their factories to meet new fuel-efficiency standards of at least 35 mpgU.S. (14.9 km/L) by 2020. The $25 billion in loans from the Department of Energy to the auto manufacturers were actually authorized by Congress early this year but not funded. Automakers could use these loans to "equip or establish facilities to produce ‘advanced technology vehicles’ that would meet certain emissions and fuel economy standards; component suppliers could borrow funds to retool or build facilities to produce parts for such vehicles."
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In 2008, a series of damaging blows drove the Big Three to the verge of bankruptcy. Part of the cause was very high labor costs (much higher than the foreign plants in the U.S.). The Big Three had in recent years manufactured SUVs and large pickups
, which were much more profitable than smaller, fuel-efficient cars. Manufacturers made 15% to 20% profit margin on an SUV, compared to 3% or less on a car. When gasoline prices rose above $4 per gallon in 2008, Americans stopped buying the big vehicles and Big Three sales and profitability plummeted. Robert Samuelson has advocated a more consistent energy policy, arguing "wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences -- to and from SUVs."
The financial crisis played a role, as GM was unable to obtain credit to buy Chrysler. Sales fell further as consumer credit tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car. During 2007, nearly 2 million new U.S. cars were purchased with funds from home equity loans. Such funding was considerably less available in 2008. In addition, stock prices fell as shareholders worried about bankruptcy; GM's shares fell below 1946 levels. Furthermore, the instability of the job market and individual consumers' finances discourages consumers who already have a working vehicle from taking on a new loan and payments, which affected almost all major manufacturers.
The annual capacity of the industry is 17 million cars; sales in 2008 dropped to an annual rate of only 10 million vehicles made in the U.S. and Canada. All the automakers and their vast supplier network account for 2.3% of the U.S. economic output, down from 3.1% in 2006 and as much as 5% in the 1990s. Some 20% of the entire national manufacturing sector is still tied to the automobile industry. The transplants can make a profit when sales are at least 12 million; the Big Three when sales are at least 15 million.
The crisis has affected auto companies around the world, with large sales decreases experienced by all.
As of December 19, 2008, oil prices had fallen to $33.87 per barrel, but the automobile crisis continues.
Automotive industry
The automotive industry designs, develops, manufactures, markets, and sells motor vehicles, and is one of the world's most important economic sectors by revenue....
. The downturn also affected Canada by virtue of the Automotive Products Trade Agreement
Automotive Products Trade Agreement
The Canada—United States Automotive Products Agreement, commonly known as the Auto Pact or APTA, was an important trade agreement between Canada and the United States. It was signed by Prime Minister Lester B. Pearson and President Lyndon B...
.
The automotive industry was weakened by a substantial increase in the prices of automotive fuels linked to the 2003-2008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup truck
Pickup truck
A pickup truck is a light motor vehicle with an open-top rear cargo area .-Definition:...
s which have low fuel economy
Fuel economy in automobiles
Fuel usage in automobiles refers to the fuel efficiency relationship between distance traveled by an automobile and the amount of fuel consumed....
. The popularity and relatively high profit margins of these vehicles had encouraged the American "Big Three" automakers, General Motors
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
, Ford, and Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....
to make them their primary focus. With fewer fuel-efficient models to offer to consumers, sales began to slide. By 2008, the situation had turned critical as the credit crunch placed pressure on the prices of raw material
Raw material
A raw material or feedstock is the basic material from which a product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state. Latex, iron ore, logs, and crude...
s.
Car companies from Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
, Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
, and elsewhere have implemented creative marketing strategies to entice reluctant consumers as most experienced double-digit percentage declines in sales. Major manufacturers, including the Big Three and Toyota offered substantial discounts across their lineups. The Big Three faced criticism for their lineups, which were seen to be irresponsible in light of rising fuel prices. North American consumers turned to smaller, cheaper, more fuel-efficient imports from Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
and Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
. However, many of the vehicles perceived to be foreign were actually "transplants," foreign cars manufactured or assembled in the United States, at lower cost than true imports.
China
In 2008 the Chinese government reduced automotive taxes in order to spur flagging sales. In January 2009, Chinese auto-manufacturer CheryChery Automobile
Chery Automobile Co Ltd is a state-owned automobile manufacturer in the People's Republic of China.Chery became the 7th most-productive Chinese vehicle manufacturer in 2010, selling nearly 700,000 units.-History:...
reported unprecedented monthly sales. (See also Automobile industry in China
Automobile industry in China
Automotive industry in the People's Republic of China has become the largest automotive market in the world since late 2008. China's automobile industry has been in rapid development since the early 1990s...
)
India
Citing falling production numbers, the State Bank of IndiaState Bank of India
The State Bank of India is the largest Indian banking and financial services company with its headquarters in Mumbai, India. It is state-owned. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest...
reduced interest rates on automotive loans in February 2009.
For the first few months of 2009, Tata Motors
Tata Motors
Tata Motors Limited is an Indian multinational automotive corporation headquartered in Mumbai, India. Part of the Tata Group, it was formerly known as TELCO...
conducted a widespread marketing campaign heralding the debut of the Tata Nano
Tata Nano
The Tata Nano is an inexpensive, rear-engined, four-passenger city car built by the Indian company Tata Motors and is aimed primarily at the Indian domestic market....
. Billed as "the people's car," the manufacturer hopes the low cost will encourage customers to purchase the vehicle despite the ongoing credit crisis.
Japan
Big Three automobile manufacturers
The Big Three, when used in relation to the automotive industry, most generally refers to the three major American automotive companies:Ford, General Motors, and Chrysler...
. For Toyota, these were attributed mainly to slow sales of its Tundra pickup
Toyota Tundra
The Toyota Tundra is a full-size pickup truck introduced by Toyota in the year 2000. It was widely considered to be the first full-size import-brand truck built with an American look and feel and a refined V8 engine. The Tundra was eventually nominated for the North American Truck of the Year...
, as well as shortages of its fuel-efficient vehicles such as the Prius
Toyota Prius
The Toyota Prius is a full hybrid electric mid-size hatchback, formerly a compact sedan developed and manufactured by the Toyota Motor Corporation...
, Corolla
Toyota Corolla
The Toyota Corolla is a line of subcompact and compact cars manufactured by the Japanese automaker Toyota, which has become very popular throughout the world since the nameplate was first introduced in 1966. In 1997, the Corolla became the best selling nameplate in the world, with over 35 million...
and Yaris
Toyota Yaris
The Toyota Yaris is a subcompact car produced by Toyota since 1999. Between 1999 and 2005, some markets received the same vehicles under the Toyota Echo name...
. In response, the company has announced plans to idle its truck plants, while shifting production at other facilities to manufacture in-demand vehicles. On December 22, 2008, Toyota declared that it expected the first time loss in 70 years in its core vehicle-making business. Loss of $1.7 billion, in its group operating revenue, would be its first operating loss since 1938 (Company was founded in 1937). Toyota saw its sales drop 33.9 percent and Honda Motor by 31.6 percent.
On 5 December 2008 Honda Motor Company
Honda
is a Japanese public multinational corporation primarily known as a manufacturer of automobiles and motorcycles.Honda has been the world's largest motorcycle manufacturer since 1959, as well as the world's largest manufacturer of internal combustion engines measured by volume, producing more than...
announced that it would be exiting Formula One
Formula One
Formula One, also known as Formula 1 or F1 and referred to officially as the FIA Formula One World Championship, is the highest class of single seater auto racing sanctioned by the Fédération Internationale de l'Automobile . The "formula" designation in the name refers to a set of rules with which...
race with immediate effect due to the 2008 economic crisis and are looking to sell the team. Honda has predicted that there may be reductions among part-time and contract staff. Upper management bonuses would also be reassessed and directors in the company will take a 10 percent pay cut effective January 2009.
Nissan
Nissan Motors
, usually shortened to Nissan , is a multinational automaker headquartered in Japan. It was a core member of the Nissan Group, but has become more independent after its restructuring under Carlos Ghosn ....
, another leading Japanese car manufacturer, announced that it also would be slashing production and will reduce its output by 80,000 vehicles in the first few months of 2009.
In December 2008, Suzuki, Japan's fourth biggest car manufacturer, announced that it will cut production in Japan by about 30,000 units due to falling demand. The company is expected to face its first profit drop in eight years for financial year ending in March 2009.
On 16 December 2008, Fuji Heavy Industries
Fuji Heavy Industries
, or FHI, is a Japanese transportation conglomerate most known for being the manufacturer of Subaru automobiles. It traces its roots to the Nakajima Aircraft Company, a leading supplier of airplanes to the Japanese government during World War II...
, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
's largest transport equipment manufacturer and the maker of Subaru
Subaru
; is the automobile manufacturing division of Japanese transportation conglomerate Fuji Heavy Industries .Subaru is internationally known for their use of the boxer engine layout popularized in cars by the Volkswagen Beetle and Porsche 911, in most of their vehicles above 1500 cc as well as...
brand cars, announced that it would exiting World Rally Championship
World Rally Championship
The World Rally Championship is a rallying series organised by the FIA, culminating with a champion driver and manufacturer. The driver's world championship and manufacturer's world championship are separate championships, but based on the same point system. The series currently consists of 13...
at the end of the 2008 championship
2008 World Rally Championship season
The 2008 World Rally Championship season was the 36th season of the FIA World Rally Championship. The season consisted of 15 rallies and began on January 24, with the 2008 Monte Carlo Rally....
, "this sudden decision was in response to the widespread economic downturn that is affecting the entire automotive industry", and came one day after competitor Suzuki
Suzuki
is a Japanese multinational corporation headquartered in Hamamatsu, Japan that specializes in manufacturing compact automobiles and 4x4 vehicles, a full range of motorcycles, all-terrain vehicles , outboard marine engines, wheelchairs and a variety of other small internal combustion engines...
exited the sport.
Reported in Bloomberg on Dec 23, 2008, that Mitsubishi Motors is to widen production cuts on falling demand. The Japanese maker of Outlander sport-utility vehicles, will scrap the night shifts at two domestic factories as the deepening global recession saps auto demand. The carmaker will halt the night shift at its Mizushima plant, excluding the minicar line. Nighttime work at the Okazaki factory will stop from Feb. 2. The cuts are part of Mitsubishi's move to reduce planned output by 110,000 vehicles in the year ending March because of tumbling sales in Japan, the U.S. and Europe. Japan's vehicle sales may fall to the lowest in 31 years in 2009, according to the country's automobile manufacturers association. Mitsubishi will also halt production of passenger cars on every Friday next month at the Mizushima factory in western Japan. The Okazaki plant in central Japan will close every Saturday in January and for another five days.
Toyota on Dec 22, 2008 slashed profit forecasts amid a sales slump. The Japanese automaker, often held up with Honda as a success story for the rest of the auto industry to follow, said it expected a slim profit margin of US$555 million for the year ending in March 2009. Toyota had originally been projecting a massive profit of $13.9 billion for that period. Their sales in the United States were down 34 per cent and were down 34 per cent in Europe as well. They expected a loss which would be the equivalent of about $2 billion (CDN)." Toyota President Katsuaki Watanabe said the impact on the company from the struggling global economy has been "faster, wider and deeper than expected." "The change that has hit the world economy is of a critical scale that comes once in a hundred years," Watanabe said, speaking in Nagoya.
Facing its first loss in nearly sixty years, Toyota sought loans from the Japanese government.
On November 4, 2009, Toyota announced its immediate withdrawal from Formula One, ending the team's involvement in the sport after eight seasons. See also 2009–2010 Toyota vehicle recalls
2009–2010 Toyota vehicle recalls
Three separate but related recalls of automobiles by Toyota Motor Corporation occurred at the end of 2009 and start of 2010. Toyota initiated the recalls, the first two with the assistance of the U.S. National Highway Traffic Safety Administration , after reports that several vehicles experienced...
.
South Korea
Hyundai-Kia's continued success was unusual at a time when most automakers saw their sales falling sharply, with leading automaker GM
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
even filing for bankruptcy. Hyundai-Kia took significant advantage of the prolonged automotive crisis by producing affordable yet high quality and well designed vehicles. Rapid globalization has seen state of the art factories being built in several countries including Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...
, the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
. The manufacturing facilities have been geared-up to build products that are designed and engineered for local markets. The Kia cee'd
Kia cee'd
The Kia Cee'd is a front wheel drive small family car released in the European market by the Korean manufacturer Kia Motors in December 2006—superseding the Kia Spectra—and available as a five-door hatchback, three-door hatchback , and five-door estate with a choice of up to four...
is a leading example, being designed, developed and engineered in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
and built in Slovakia.
Unlike others, this crisis turned into an opportunity for many South Korean automakers. Korean automaker Hyundai
Hyundai Motor Company
Hyundai Motor Company is a Korean multinational automaker based in Seoul, South Korea which, along with Kia, comprises the Hyundai Kia Automotive Group, the world's fourth largest automaker as of 2009. As of 2011, it is the world's fastest growing automaker for two years running...
offered customers who have lost their jobs to return a new-car purchase for a refund. The continued growth and success is attributable to the country's fuel-efficient and well-equipped, yet affordable cars with generous warranties, such as the Kia Picanto
Kia Picanto
The Kia Picanto, known as the Kia Morning in South Korea and Chile, Kia EuroStar in Taiwan, Kia New Morning in Vietnam and the Naza Suria or Naza Picanto in Malaysia, is a low cost city car produced by Kia Motors....
, Kia cee'd
Kia cee'd
The Kia Cee'd is a front wheel drive small family car released in the European market by the Korean manufacturer Kia Motors in December 2006—superseding the Kia Spectra—and available as a five-door hatchback, three-door hatchback , and five-door estate with a choice of up to four...
and Hyundai i30
Hyundai i30
The Hyundai i30 is a small family car by South Korean automaker Hyundai Motor Company. The i30 shares its platform with the Kia cee'd, available as a five-door hatchback or estate, with a choice of three petrol and two diesel engines, either with manual or automatic transmissions.The i30 wagon is...
, which attracted global consumers at a time of severe economic recession, rapidly rising oil prices and increasing environmental concerns. South Korean automakers therefore had a competitive advantage against expensive luxury vehicles and SUVs from US, Japanese and German automakers.
During the fourth quarter of 2008 to the first quarter of 2009, which was the height of this automotive crisis, the extremely weak South Korean won
South Korean won
The won is the currency of South Korea. A single won is divided into 100 jeon, the monetary subunit. The jeon is no longer used for everyday transactions, and appears only in foreign exchange rates...
, especially against the US dollar and Japanese yen
Japanese yen
The is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...
, significantly boosted the price competitiveness of South Korean exports in key markets. Another factor that helped maintain this momentum was an increasingly improving brand awareness, attributable to the introduction of the country's own luxury vehicles such as the Hyundai Genesis
Hyundai Genesis
The Hyundai Genesis is a full-size luxury car initially introduced as a concept car in the 2007 New York International Auto Show. Hyundai has introduced the vehicle worldwide, known internally as the BH model, and markets the Genesis as a "premium sports sedan". The Genesis is currently not...
and Hyundai Genesis Coupe
Hyundai Genesis Coupe
The Hyundai Genesis Coupé is a rear-wheel drive sports coupe from Hyundai Motor Company, released on October 13, 2008 for the Korean market. It is Hyundai's first rear-wheel drive sports coupe, and shares its basic platform with the Hyundai Genesis luxury sedan....
, which received highly positive awards in the press and reviews. Hyundai's brand grew by 9% in 2008, surpassing Porsche
Porsche
Porsche Automobil Holding SE, usually shortened to Porsche SE a Societas Europaea or European Public Company, is a German based holding company with investments in the automotive industry....
and Ferrari
Ferrari
Ferrari S.p.A. is an Italian sports car manufacturer based in Maranello, Italy. Founded by Enzo Ferrari in 1929, as Scuderia Ferrari, the company sponsored drivers and manufactured race cars before moving into production of street-legal vehicles as Ferrari S.p.A. in 1947...
, while it used the Super Bowl
Super Bowl
The Super Bowl is the championship game of the National Football League , the highest level of professional American football in the United States, culminating a season that begins in the late summer of the previous calendar year. The Super Bowl uses Roman numerals to identify each game, rather...
football broadcast, the world's most expensive commercial air time, to promote the Hyundai brand in the United States.
Nonetheless, South Korean automakers were not completely immune to this automotive crisis and in December 2008 Hyundai Motor Company
Hyundai Motor Company
Hyundai Motor Company is a Korean multinational automaker based in Seoul, South Korea which, along with Kia, comprises the Hyundai Kia Automotive Group, the world's fourth largest automaker as of 2009. As of 2011, it is the world's fastest growing automaker for two years running...
had begun reducing production at plants in the U.S., China, Slovakia, India and Turkey because of sluggish demand. The company missed an earlier projection of 4.8 million units for 2008 and announced a freeze of wages for administrative workers and shortened factory operations as demand weakens amid a global financial crisis.
South Korea's fourth largest automaker, SsangYong Motor
SsangYong Motor Company
SsangYong Motor Company is the fourth largest South Korean automobile manufacturer. The name SsangYong means double dragons.SsangYong was acquired by India's Mahindra & Mahindra Limited in February 2011, after being named the preferred bidder in 2010 to acquire the bankruptcy-protected company...
, owned by the Chinese automobile manufacturer SAIC (Shanghai Automotive Industry Corporation), is the worst affected company in this crisis as it manufactures mainly heavy petroleum consuming SUVs. The carmaker recorded its fourth straight quarterly losses by the end of 2008 with red ink of $20.8 million in the third quarter. Also during the July to September period, sales dropped 63 percent to 3,835 vehicles. Its production lines have been idle since Dec. 17 as part of efforts to reduce its inventory. The automaker has halted production twice previously this year. In December 2008, SAIC gave an ultimatum to the SsangYong union to accept its restructuring plan or face the parent company's withdrawal, which, if implemented, would mean certain bankruptcy.
However, the South Korean Ministry of Knowledge Economy said that there will be no liquidity provision at the government level for five automakers - Hyundai, Kia, GM Daewoo, Samsung Renault
Renault Samsung Motors
Renault Samsung Motors is a South Korean automobile manufacturer. It was first established as Samsung Motors in 1994 and started selling cars in 1998, just before South Korea was hit by the Asian financial crisis...
and Ssangyong."We have no plans to inject liquidity into the carmakers," a ministry official said. "It has been repeatedly made clear."
Europe
In EuropeEurope
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
where car sales had also drastically decreased, consideration was being given to financial support for the automotive industry, particularly in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
and Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
. German Foreign Minister Frank-Walter Steinmeier
Frank-Walter Steinmeier
Frank-Walter Steinmeier is a German politician of the Social Democratic Party of Germany , and currently the leader of the opposition in the Bundestag. Steinmeier was a close aide of Chancellor Gerhard Schröder, serving as Chief of Staff in the German Chancellery from 1999 to 2005...
and Jean-Claude Juncker
Jean-Claude Juncker
Jean-Claude Juncker is a Luxembourg politician, 23rd and current Prime Minister of Luxembourg, since 20 January 1995. He is the longest standing head of government of any European Union state...
, Luxembourg's Prime Minister and head of the Eurogroup of single currency nations, discussed the possibility of a common rescue package to be agreed by all the EU member states.
France
On November 20, 2008, French automobile manufacturer PSA Peugeot CitroenPSA Peugeot Citroën
PSA Peugeot Citroën is a French manufacturer of automobiles and motorcycles sold under the Peugeot and Citroën marques. Headquartered in the 16th arrondissement of Paris, PSA is the second largest automaker based in Europe and the number eight in the world.-History:In December 1974 Peugeot S.A....
predicted sales volumes would fall by at least 10% in 2009, following a 17% drop in the current quarter. As a result, it planned to cut 2,700 jobs. On the 11 February 2009, PSA announced it would cut 11,000 jobs world wide, however none of these are expected to be in France.
Renault
Renault
Renault S.A. is a French automaker producing cars, vans, and in the past, autorail vehicles, trucks, tractors, vans and also buses/coaches. Its alliance with Nissan makes it the world's third largest automaker...
announced a net profit for 2008 of 599 million euros for the 2008 financial year. This was a 78% drop in profits from the 2007 financial year. European sales fell 4% and world wide sales 7%, forcing Renault to abandon their 2009 growth targets. This however made Renault one of the few car makers to return a profit. Renault consistently struggled to return profits in the 1990s.
France/Germany
On November 24, 2008, French President Nicolas SarkozyNicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....
and German Chancellor Angela Merkel
Angela Merkel
Angela Dorothea Merkel is the current Chancellor of Germany . Merkel, elected to the Bundestag from Mecklenburg-Vorpommern, has been the chairwoman of the Christian Democratic Union since 2000, and chairwoman of the CDU-CSU parliamentary coalition from 2002 to 2005.From 2005 to 2009 she led a...
agreed to support the crisis-stricken automobile industry in France and Germany. Detailed plans would be announced shortly.
Italy
Fiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
in Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
announced that it will extend its temporary plant closures in Italy by a month; the Pomigliano d'Arco, the main plant for its Alfa Romeo
Alfa Romeo
Alfa Romeo Automobiles S.p.A. is an Italian manufacturer of cars. Founded as A.L.F.A. on June 24, 1910, in Milan, the company has been involved in car racing since 1911, and has a reputation for building expensive sports cars...
cars will be shut for four weeks. However, on February 20, 2009, reacting to actions by the Italian government to stimulate the automotive sector, Fiat said its plant closures would be curtailed. The company also forecast that sales in Europe will drop by 14 percent in 2009.
On January 20, 2009 the company announced that it had entered into an agreement, subject to regulatory approvals, to acquire 35% of Chrysler. Fiat's 35% stake in Chrysler would not involve a conventional sale of shares, but would be achieved in return for allowing Chrysler to utilise some of Fiat's fuel efficient technologies (Chrysler's February submission to the US government included a commitment to produce nine Fiat-derived vehicles over a four-year period starting in 2010, including four hybrid-electric and battery-electric models). Chrysler would be accorded access to Fiat's sales outlets in Europe, while in reciprocation Fiat will also gain access to Chrysler's dealership network in the US, where it is predicted smaller models such as the Fiat Grande Punto
Fiat Grande Punto
The Fiat Grande Punto is a car manufactured by the Italian automaker Fiat. It was unveiled on May 5, 2005 and replaced by the Punto Evo in 2010. In September 2011 Fiat unveil the Punto model year 2012, the new version will replaced the Grande Punto and the Punto Evo...
may be successful. In the past, Fiat has had trouble gaining a foothold in the American markets, whilst Chrysler has never held a strong market share in Europe since it sold its UK based Rootes Group and France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
based Simca
Simca
Simca was a French automaker, founded in November 1934 by Fiat. It was directed from July 1935 to May 1963 by the Italian Henri Théodore Pigozzi...
to PSA Peugeot Citroen
PSA Peugeot Citroën
PSA Peugeot Citroën is a French manufacturer of automobiles and motorcycles sold under the Peugeot and Citroën marques. Headquartered in the 16th arrondissement of Paris, PSA is the second largest automaker based in Europe and the number eight in the world.-History:In December 1974 Peugeot S.A....
in the 1980s
1980s
File:1980s decade montage.png|thumb|400px|From left, clockwise: The first Space Shuttle, Columbia, lifted off in 1981; American President Ronald Reagan and Soviet leader Mikhail Gorbachev eased tensions between the two superpowers, leading to the end of the Cold War; The Fall of the Berlin Wall in...
.
On January 22, 2009, Fiat announced a 19% drop in revenues in the last three months of 2008. Italian Prime Minister Silvio Berlusconi
Silvio Berlusconi
Silvio Berlusconi , also known as Il Cavaliere – from knighthood to the Order of Merit for Labour which he received in 1977 – is an Italian politician and businessman who served three terms as Prime Minister of Italy, from 1994 to 1995, 2001 to 2006, and 2008 to 2011. Berlusconi is also the...
said the government would meet to discuss the issue.
Russia
Russia's automotive industry was hit hard by the late 2000s recessionLate 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
, which started from United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. Production of passenger cars dropped from 1,470,000 units in 2008 to just 597,000 units in 2009. Lorry production fell from 256,000 to 91,000 in the same period.
In late 2008, the Russian government introduced protectionistic measures, worth $5 billion, to improve the situation in the industry. This included $2 billion's worth of bailouts for troubled companies and $3 billion credits to buyers of Russian cars. Prime minister Vladimir Putin
Vladimir Putin
Vladimir Vladimirovich Putin served as the second President of the Russian Federation and is the current Prime Minister of Russia, as well as chairman of United Russia and Chairman of the Council of Ministers of the Union of Russia and Belarus. He became acting President on 31 December 1999, when...
described the move as vital in order to save jobs. The tariffs for imported foreign cars and trucks were increased to a minimum 50% and 100%, respectively. The tariffs are linked to engine size of the vehicle. The increased duties led to protests in Russian cities, most notably in Vladivostok
Vladivostok
The city is located in the southern extremity of Muravyov-Amursky Peninsula, which is about 30 km long and approximately 12 km wide.The highest point is Mount Kholodilnik, the height of which is 257 m...
, as the import of Japanese cars is an important sector of the city's economy.
The most efficient anti-crisis measure executed by the Russian government was the introduction of a car scrappage scheme in March 2010. Under the scheme, buyers of new cars can receive a subsidy which is 600,000 rubles ($20,000) at maximum. Sales of Russia's largest carmaker Avtovaz
AvtoVAZ
AvtoVAZ is the Russian automobile manufacturer formerly known as VAZ: Volzhsky Avtomobilny Zavod , but better known to the world under the trade name Lada. The company was established in the late 1960s in collaboration with Fiat...
sales doubled in the second quarter of 2010 as a result, and the company returned to profit.
Spain
Spanish automobile manufacturer SEATSEAT
SEAT, S.A. is a Spanish automobile manufacturer founded on May 9, 1950 by the Instituto Nacional de Industria , a state-owned industrial holding company....
(a subsidiary of the Volkswagen Group
Volkswagen Group
Volkswagen Group is a German multinational automobile manufacturing group. , Volkswagen was ranked as the world’s third largest motor vehicle manufacturer and Europe's largest....
) cut production at its Martorell
Martorell
Martorell is a town near Barcelona, in Catalonia, Spain, primarily known for its medieval Devil's bridge.It has three railway stations - one on the RENFE line from Manresa to Sant Vicenç de Calders called "Martorell", and three on the FGC line from Barcelona to Manresa called "Martorell-Vila",...
plant by 5% on the 7 October 2008, due to a fall in general sales. This affected 750 employees and continued until July 2009. SEAT is still continuing to install solar panels in its Martorell plant near Barcelona
Barcelona
Barcelona is the second largest city in Spain after Madrid, and the capital of Catalonia, with a population of 1,621,537 within its administrative limits on a land area of...
.
Sweden
On December 11, 2008, the Swedish government provided its troubled auto makers, VolvoVolvo Cars
Volvo Car Corporation, or Volvo Personvagnar AB, is a Swedish automobile manufacturer founded in 1927, in Gothenburg, Sweden. It is owned by Zhejiang Geely Holding Group. Volvo was originally formed as a subsidiary company to the ball bearing maker SKF. When Volvo AB was introduced on the Swedish...
and Saab
Saab Automobile
Saab Automobile AB, better known as Saab , is a Swedish car manufacturer owned by Dutch automobile manufacturer Swedish Automobile NV, formerly Spyker Cars NV. It is the exclusive automobile Royal Warrant holder as appointed by the King of Sweden...
, with support amounting to SEK
SEK
SEK may stand for:*Swedish krona, the currency of Sweden*Federation of Swiss Protestant Churches *SEK Studio, a North Korean animation studio* Stagecoach in East Kent...
28 billion (3.5 billion USD). The two companies had requested assistance, faced with the financial difficulties of their U.S. owners Ford and General Motors. The plan consists of a maximum of SEK 20 billion in credit guarantees, and up to SEK 5 billion in rescue loans. On the 18 February 2009 General Motors warned Saab
Saab
Saab AB is a Swedish aerospace and defence company, founded in 1937. From 1947 to 1990 it was the parent company of automobile manufacturer Saab Automobile, and between 1968 and 1995 the company was in a merger with commercial vehicle manufacturer Scania, known as Saab-Scania.-History:"Svenska...
may fail within ten days, should the Swedish government not intervene. On 20 February, an administrator was appointed to restructure Saab and assist in it becoming independent of its troubled parent General Motors. General Motors have confirmed their intention to sell their Swedish subsidiary, Saab. Of Sweden's 9 million population, 140,000 work in the car industry and they account for 15% of exports.
United Kingdom
In the U.K., Jaguar Land RoverJaguar Land Rover
Jaguar Land Rover is a British automotive company owned by Tata Motors of India. It develops, manufactures and sells vehicles under the Jaguar and Land Rover marques.-History:...
, now owned by Tata Motors
Tata Motors
Tata Motors Limited is an Indian multinational automotive corporation headquartered in Mumbai, India. Part of the Tata Group, it was formerly known as TELCO...
, was seeking a $1.5 billion loan from the government to cope with the credit crisis.
On December 22, 2008, Tata motors
Tata Motors
Tata Motors Limited is an Indian multinational automotive corporation headquartered in Mumbai, India. Part of the Tata Group, it was formerly known as TELCO...
declared that it would inject "tens of millions" of pounds for Jaguar Land Rover company it had acquired from Ford Motor Corporation in early 2008. British Prime Minister Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
also stated the intention to help out car industry in U.K.
On the 8 January 2009, Nissan UK
Nissan Motor Manufacturing (UK) Ltd
Nissan Motor Manufacturing Ltd, or NMUK is a car manufacturing plant in Washington, Tyne and Wear, United Kingdom. It is owned and operated by the European division of Japanese car manufacturer Nissan. It is the largest car plant in the United Kingdom, and the most productive in Europe...
announced it was to shed 1200 jobs from its Washington, Tyne and Wear
Washington, Tyne and Wear
Washington is a town in the City of Sunderland in Tyne and Wear, England. Historically part of County Durham, it joined a new county in 1974 with the creation of Tyne and Wear...
factory in North East England
North East England
North East England is one of the nine official regions of England. It covers Northumberland, County Durham, Tyne and Wear, and Teesside . The only cities in the region are Durham, Newcastle upon Tyne and Sunderland...
due to the automotive industry crisis of 2008. This announcement was made, despite the plant recently being hailed as the most efficient in Europe.
General Motors UK subsidiary Vauxhall Motors
Vauxhall Motors
Vauxhall Motors is a British automotive company owned by General Motors and headquartered in Luton. It was founded in 1857 as a pump and marine engine manufacturer, began manufacturing cars in 1903 and was acquired by GM in 1925. It has been the second-largest selling car brand in the UK for...
, whose brand is the second most popular in the UK has two bases in the UK, a factory in Ellesmere Port
Ellesmere Port
Ellesmere Port is a large industrial town and port in the unitary authority of Cheshire West and Chester and the ceremonial county of Cheshire, England. It is situated on the south border of the Wirral Peninsula on the banks of the Manchester Ship Canal, which in turn gives access to the River...
, Cheshire
Cheshire
Cheshire is a ceremonial county in North West England. Cheshire's county town is the city of Chester, although its largest town is Warrington. Other major towns include Widnes, Congleton, Crewe, Ellesmere Port, Runcorn, Macclesfield, Winsford, Northwich, and Wilmslow...
and their headquarters and design and development centre in Luton
Luton
Luton is a large town and unitary authority of Bedfordshire, England, 30 miles north of London. Luton and its near neighbours, Dunstable and Houghton Regis, form the Luton/Dunstable Urban Area with a population of about 250,000....
, Bedfordshire
Bedfordshire
Bedfordshire is a ceremonial county of historic origin in England that forms part of the East of England region.It borders Cambridgeshire to the north-east, Northamptonshire to the north, Buckinghamshire to the west and Hertfordshire to the south-east....
. It is as yet unknown whether these plants will be affected by the GM cutbacks. The group along with their sister subsidiary, Opel
Opel
Adam Opel AG, generally shortened to Opel, is a German automobile company founded by Adam Opel in 1862. Opel has been building automobiles since 1899, and became an Aktiengesellschaft in 1929...
of Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
was supposed to be sold in their majority to Magna International
Magna International
Magna International Inc. , is an automotive supplier headquartered in Aurora, Ontario, Canada. It is Canada's largest automobile parts manufacturer, and one of the country's largest companies. It owns the Magna Steyr automobile production company of Austria....
, an Austro
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
-Canadian
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
company who supply many parts to large car companies, but General Motors cancelled the transaction.
UK bus manufacturer Optare
Optare
Optare plc is a bus manufacturer and importer based in Leeds and Blackburn, UK. The company operates from three main business units, Bus Manufacturing, Coach Sales and Unitec....
received an order from Arriva
Arriva
Arriva plc is a multinational public transport company owned by Deutsche Bahn and headquartered in Sunderland, United Kingdom. It has bus, coach, train, tram and waterbus operations in 12 countries across Europe, employs more than 47,500 people and services over 1.5 billion passenger journeys each...
in November 2008 for the manufacture of 53 buses in a contract worth over £6million, securing 500 jobs at the company's Assembly factory in Cross Gates, Leeds
Leeds
Leeds is a city and metropolitan borough in West Yorkshire, England. In 2001 Leeds' main urban subdivision had a population of 443,247, while the entire city has a population of 798,800 , making it the 30th-most populous city in the European Union.Leeds is the cultural, financial and commercial...
, West Yorkshire
West Yorkshire
West Yorkshire is a metropolitan county within the Yorkshire and the Humber region of England with a population of 2.2 million. West Yorkshire came into existence as a metropolitan county in 1974 after the passage of the Local Government Act 1972....
and the parts centre in Cumbernauld
Cumbernauld
Cumbernauld is a Scottish new town in North Lanarkshire. It was created in 1956 as a population overspill for Glasgow City. It is the eighth most populous settlement in Scotland and the largest in North Lanarkshire...
, North Lanarkshire
North Lanarkshire
North Lanarkshire is one of 32 council areas in Scotland. It borders onto the northeast of the City of Glasgow and contains much of Glasgow's suburbs and commuter towns and villages. It also borders Stirling, Falkirk, East Dunbartonshire, West Lothian and South Lanarkshire...
.
UK Van and commercial vehicle manufacturer LDV asked the UK government for a £30 million bridging loan to facilitate a management buyout of the group. On the same day this was refused. LDV has since said it has a viable future and intends to become the first volume producer of electric vans should the management buyout take place. Production at LDV's factory in Birmingham
Birmingham
Birmingham is a city and metropolitan borough in the West Midlands of England. It is the most populous British city outside the capital London, with a population of 1,036,900 , and lies at the heart of the West Midlands conurbation, the second most populous urban area in the United Kingdom with a...
, West Midlands
West Midlands (county)
The West Midlands is a metropolitan county in western central England with a 2009 estimated population of 2,638,700. It came into existence as a metropolitan county in 1974 after the passage of the Local Government Act 1972, formed from parts of Staffordshire, Worcestershire and Warwickshire. The...
(where it employs 850 staff) has been suspended since December 2008 due to falling demand. Eventually, no buyout materialised and the LDV was declared defunct on 15 October 2009
Canada
The Canadian auto industry is closely linked to the U.S., due to the Automotive Products Trade AgreementAutomotive Products Trade Agreement
The Canada—United States Automotive Products Agreement, commonly known as the Auto Pact or APTA, was an important trade agreement between Canada and the United States. It was signed by Prime Minister Lester B. Pearson and President Lyndon B...
and later the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA), and is in similar trouble.
United States
The crisis in the United States is mainly defined by the government bailouts of both General MotorsGeneral Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
and Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....
, while Ford secured a line of credit in case they require a bridging loan in the near future. Car sales declined in the United States, affecting both US based and foreign car manufacturers. The bridging loans lead to greater scrutiny of the US automotive industry in addition to criticism of their product range, product quality, high labour wages, job bank programs, and healthcare and retirement benefits.
While the "Big Three
Big Three automobile manufacturers
The Big Three, when used in relation to the automotive industry, most generally refers to the three major American automotive companies:Ford, General Motors, and Chrysler...
" U.S. market share declined from 70% in 1998 to 53% in 2008, global volume increased particularly in Asia and Europe. The U.S. auto industry was profitable in every year since 1955, except those years following U.S. recessions and involvement in wars. U.S. auto industry profits suffered from 1971-73 during the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...
, during the recession in the late 1970s which impacted auto industry profits from 1981–83, during and after the Gulf War when industry profits declined from 1991–93, and during the Iraq War from 2001–03 and 2006-09. During these periods the companies incurred much legacy debt.
Facing financial losses, the Big Three have idled many factories and drastically reduced employment levels. GM spun off many of its employees in certain divisions into independent companies, including American Axle
American Axle
American Axle & Manufacturing, Inc. , headquartered in Detroit, Michigan, is a manufacturer of automobile driveline and drivetrain components and systems.-History:...
in 1994 and Delphi
Delphi (auto parts)
Delphi Automotive PLC is an automotive parts company headquartered in Troy, Michigan, USA. Delphi is one of the world's largest automotive parts manufacturers and has approximately 146,600 employees ....
in 1999. Ford spun off Visteon
Visteon
Visteon is one of the world's largest suppliers of automotive parts. The company formed in 1997 and spun off from the Ford Motor Company in 2000. In 2005, Visteon moved to new headquarters in Van Buren Township, Michigan...
in 2000. The spin-offs and other parts makers have shared Detroit's downturns, as have the U.S.-owned plants in Canada. Altogether the parts makers employ 416,000 people in the U.S. and Canada. General Motors alone is estimated to have lost $51 billion in the three years before the 2008 financial crisis began. GM is set to reacquire factories from its Delphi subsidiary during its Chapter 11 restructing.
The 2005 Harbour Report estimated that Toyota's lead in benefits cost advantage amounted to $350 US to $500 US per vehicle over North American manufacturers. The United Auto Workers
United Auto Workers
The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, better known as the United Auto Workers , is a labor union which represents workers in the United States and Puerto Rico, and formerly in Canada. Founded as part of the Congress of Industrial...
agreed to a two-tier wage in recent 2007 negotiations, something which the Canadian Auto Workers
Canadian Auto Workers
The Canadian Auto Workers is one of Canada's largest and highest profile social unions. While rooted in Ontario's large auto plants of Windsor, Brampton, Oakville, St...
has so far refused. Jared Bernstein
Jared Bernstein
Jared Bernstein is an American economist who previously served as Chief Economist and Economic Policy Adviser to Vice President Joseph Biden in the Obama Administration. In early 2009 Bernstein was named Executive Director of the newly formed White House Middle Class Working Families Task Force. He...
, the chief economist of Vice President Joe Biden
Joe Biden
Joseph Robinette "Joe" Biden, Jr. is the 47th and current Vice President of the United States, serving under President Barack Obama...
, noted in an interview with WWJ-AM in Detroit that most of the 2007 contract concessions apply only to new hires, while older workers "still benefit from contracts that were signed a long time ago." However, only 30% of parts used by the Big Three employ union labor, with 70% sourced from non-union labor.
Delphi
Delphi (auto parts)
Delphi Automotive PLC is an automotive parts company headquartered in Troy, Michigan, USA. Delphi is one of the world's largest automotive parts manufacturers and has approximately 146,600 employees ....
, which was spun off from GM in 1999, filed for Chapter 11 bankruptcy after the UAW refused to cut their wages and GM is expected to be liable for a $7 billion shortfall.
In order to improve profits, the Detroit automakers made agreements with unions to reduce wages while making pension and health care commitments. GM, for instance, at one time picked up the entire cost of funding health insurance premiums of its employees, their survivors and GM retirees, as the US did not have a universal health care system. With most of these plans chronically underfunded in the late 1990s, the companies have tried to provide retirement packages to older workers, and made agreements with the UAW to transfer pension obligations to an independent trust. Nonetheless, non-unionized Japanese automakers, with their younger American workforces (and far fewer American retirees) will continue to enjoy a cost advantage.
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
, Ford and DaimlerChrysler
DaimlerChrysler
Daimler AG is a German car corporation. By unit sales, it is the thirteenth-largest car manufacturer and second-largest truck manufacturer in the world. In addition to automobiles, Daimler manufactures buses and provides financial services through its Daimler Financial Services arm...
shifted away resources from midsize and compact cars to lead the "SUV Craze". Since the late 1990s, over half of their profits have come from light trucks and SUVs
Sport utility vehicle
A sport utility vehicle is a generic marketing term for a vehicle similar to a station wagon, but built on a light-truck chassis. It is usually equipped with four-wheel drive for on- or off-road ability, and with some pretension or ability to be used as an off-road vehicle. Not all four-wheel...
, while they often could not break even on compact cars unless the buyer chose options. Ron Harbour, in releasing the Oliver Wyman’s 2008 Harbour Report, stated that many small “econobox
Econobox
An econobox is a US slang term for any of a series of small, boxy, fuel-efficient car with few luxuries and a low sticker price.-Description:...
es” of the past acted as loss leaders, but were designed to bring customers to the brand in the hopes they would stay loyal and move up to more profitable models. The report estimated that an automaker needed to sell ten small cars to make the same profit as one big vehicle, and that they had to produce small and mid-size cars profitably to succeed, something that the Detroit three have not yet done. SUV sales peaked in 1999 but have not returned to that level ever since, due to higher gas prices.
In the case of Chrysler Corporation, compact and mid-sized vehicles such as the Dodge Neon
Dodge Neon
The Plymouth/Dodge Neon, sold in Europe, Mexico, Canada, and elsewhere outside the United States as the Chrysler Neon, is a compact front wheel drive car introduced in January 1994 for the 1995 model year by Chrysler Corporation's Dodge and Plymouth brands...
, Dodge Stratus
Dodge Stratus
The Dodge Stratus was a mid-size 4-door sedan introduced in 1995. It was based on the Chrysler JA platform Cab forward . The Stratus, Breeze, and Cirrus were all on Car and Driver magazine's Ten Best list for 1996 and 1997. It received critical acclaim at launch, but ratings fell over time...
and Chrysler Cirrus
Chrysler Cirrus
The Chrysler Cirrus was a mid-size 4-door sedan, introduced for the 1995 model year as direct replacement for the aging Chrysler LeBaron sedan. Based on the new midsize JA platform, the Cirrus was sold in the United States, Canada, Mexico, and Brazil for the 1995-2000 model years; DaimlerChrysler ...
were produced profitably during the 1990s concurrently with more profitable larger vehicles. However, following the DaimlerChrysler
DaimlerChrysler
Daimler AG is a German car corporation. By unit sales, it is the thirteenth-largest car manufacturer and second-largest truck manufacturer in the world. In addition to automobiles, Daimler manufactures buses and provides financial services through its Daimler Financial Services arm...
merger in 1998, there was a major cost-cutting operation at the company. The result was the lowering of benchmarked standards for Chrysler to aim at. This directly led to the following in Chrysler's case. There was realignment of the Chrysler Group model range with those of GM and Ford (i.e. a skew towards larger vehicles).
The Detroit Big Three had been slower to bring new vehicles to the market compared with foreign competitors. The Big Three have battled initial quality perceptions in spite of reports showing improvements.
Falling sales resulted in the Big Three's plants operating below capacity. GM's plants were operating at 85% in November 2005, well below the plants of its Asian competitors, and was only maintained by relying on cash incentives and subsidized leases. Rebates, employee pricing, and 0% financing boosted sales but drained the automaker's cash reserves. The subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
and high oil prices of 2008 caused the popularity of once best-selling trucks and SUVs to plummet. Automakers were forced to continue offering heavy incentives to help clear excess inventory. Due to the declining residual value of their vehicles, Chrysler and GM stopped offering leases on a most of their vehicles in 2008.
In September, 2008 the Big Three
Big Three automobile manufacturers
The Big Three, when used in relation to the automotive industry, most generally refers to the three major American automotive companies:Ford, General Motors, and Chrysler...
asked for $50 billion to pay for health care expenses and avoid bankruptcy and ensuing layoffs, and Congress worked out a 25$ billion loan. By December, President Bush had agreed to an emergency bailout of $17.4 billion to be distributed by the next administration in January and February. In early 2009, the prospect of avoiding bankruptcy by General Motors and Chrysler continued to wane as new financial information about the scale of the 2008 losses came in. Ultimately, poor management and business practices forced Chrysler and General Motors into bankruptcy. Chrysler filed for chapter 11 bankruptcy protection on May 1, 2009 followed by General Motors a month later.
On June 2, GM Motors announced the sale of the Hummer
Hummer
Hummer was a brand of trucks and SUVs, first marketed in 1992 when AM General began selling a civilian version of the M998 Humvee. In 1998, General Motors purchased the brand name and marketed three vehicles: the original Hummer H1, based on the Humvee; and the H2 and H3 models that were...
brand of off-road vehicles to Sichuan Tengzhong Heavy Industrial Machinery Company Ltd., a machinery company in western China, a deal which later fell through.
Effects of environmental expectations and changing product demand
Environmental politics and related concerns regarding carbon emissions have heightened sensitivity to gas mileage standards and environmental protection worldwide. In a 2007 edition of his book An Inconvenient TruthAn Inconvenient Truth
An Inconvenient Truth is a 2006 documentary film directed by Davis Guggenheim about former United States Vice President Al Gore's campaign to educate citizens about global warming via a comprehensive slide show that, by his own estimate, he has given more than a thousand times.Premiering at the...
, Al Gore
Al Gore
Albert Arnold "Al" Gore, Jr. served as the 45th Vice President of the United States , under President Bill Clinton. He was the Democratic Party's nominee for President in the 2000 U.S. presidential election....
criticized the Big Three. "They keep trying to sell large, inefficient gas-guzzlers even though fewer and fewer people are buying them." For example, Japan requires autos to achieve 45 miles per US gallon (19.1 km/L) of gasoline and China requires 35 mpgU.S. (14.9 km/L). The European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
requires 47 mpgU.S. (20 km/L) by 2012. By comparison, U.S. autos are required to achieve only 25 mpgU.S. (10.6 km/L) presently. Other nations have adopted standards that are increasing mpg requirements in the future. When California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
raised its own standards, the auto companies sued.
The Big Three received funding for a $25 billion government loan during October 2008 to help them re-tool their factories to meet new fuel-efficiency standards of at least 35 mpgU.S. (14.9 km/L) by 2020. The $25 billion in loans from the Department of Energy to the auto manufacturers were actually authorized by Congress early this year but not funded. Automakers could use these loans to "equip or establish facilities to produce ‘advanced technology vehicles’ that would meet certain emissions and fuel economy standards; component suppliers could borrow funds to retool or build facilities to produce parts for such vehicles."
Effect of 2008 oil price shock and economic crisis
Pickup truck
A pickup truck is a light motor vehicle with an open-top rear cargo area .-Definition:...
, which were much more profitable than smaller, fuel-efficient cars. Manufacturers made 15% to 20% profit margin on an SUV, compared to 3% or less on a car. When gasoline prices rose above $4 per gallon in 2008, Americans stopped buying the big vehicles and Big Three sales and profitability plummeted. Robert Samuelson has advocated a more consistent energy policy, arguing "wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences -- to and from SUVs."
The financial crisis played a role, as GM was unable to obtain credit to buy Chrysler. Sales fell further as consumer credit tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car. During 2007, nearly 2 million new U.S. cars were purchased with funds from home equity loans. Such funding was considerably less available in 2008. In addition, stock prices fell as shareholders worried about bankruptcy; GM's shares fell below 1946 levels. Furthermore, the instability of the job market and individual consumers' finances discourages consumers who already have a working vehicle from taking on a new loan and payments, which affected almost all major manufacturers.
The annual capacity of the industry is 17 million cars; sales in 2008 dropped to an annual rate of only 10 million vehicles made in the U.S. and Canada. All the automakers and their vast supplier network account for 2.3% of the U.S. economic output, down from 3.1% in 2006 and as much as 5% in the 1990s. Some 20% of the entire national manufacturing sector is still tied to the automobile industry. The transplants can make a profit when sales are at least 12 million; the Big Three when sales are at least 15 million.
The crisis has affected auto companies around the world, with large sales decreases experienced by all.
As of December 19, 2008, oil prices had fallen to $33.87 per barrel, but the automobile crisis continues.
See also
- Corporate welfareCorporate welfareCorporate welfare is a pejorative term describing a government's bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations. The term compares corporate subsidies and welfare payments to the poor, and implies that corporations are much less...
- Lemon socialismLemon socialism"Lemon socialism" is a pejorative term for government support of private-sector companies whose imminent collapse is perceived to threaten broader economic stability. Some assert it is not a subcategory of socialism per se; rather, it points to a corruption of free-market capitalist systems, which...
- Presidential Task Force on the Auto IndustryPresidential Task Force on the Auto IndustryThe Presidential Task Force on the Auto Industry is an ad hoc group of United States cabinet-level and other officials that was formed to deal with the financial bail out of automakers Chrysler Corporation and General Motors....
- Too big to failToo Big to FailToo Big to Fail is a television drama film in the United States broadcast on HBO on May 23, 2011. It is based on the non-fiction book Too Big to Fail by Andrew Ross Sorkin. The TV film was directed by Curtis Hanson...
External links
- CAR industry news.
- Auto Industry Financing and Restructuring Act.
- Capitalism and the auto crisis.
- Toyota losses highlight global auto collapse.
- GM closes plants in Wisconsin and Ohio.
- Crisis grips German auto industry.
- Thousands of jobs threatened in Swedish auto industry.
- European auto industry in crisis.
- Feb 2009 Restructuring Plans: General Motors Chrysler