The Effect of a Struggling Economy on the Auto Industry Essay

The Effect of a Struggling Economy on the Auto Industry Essay

Length: 1433 words (4.1 double-spaced pages)

Rating: Powerful Essays

Open Document

Essay Preview

Introduction
When the “Sub-Prime Mortgage Crisis” began in 2008, it triggered a global recession. Demand decreased across all industries, but the auto industry was hit especially hard due to vehicles being big ticket items. Even prior to the recession, the high prices of raw materials and fuels, as well as increased pressure from the government and consumers for automakers to build “greener” cars meant trouble for automakers. Within the industry, Canadian and the American auto makers were hurt the most. The strong presence of unions meant that they had a much higher labour cost than their competitors. Also General Motors, Ford and Chrysler, known as the “Big Three” primarily focused on manufacturing pickup trucks and SUVs because of their high profit margin. Sales plummeted when the fuel prices drastically increased and consumers could not or would not get a loan to pay for a new car.

Analysis
In 2006, prior to the “Sub-Prime Mortgage Crisis”, General Motors Corporation (GM) was focusing on implementing a turnaround plan for North America, which focused on the company increasing production of SUVs and trucks while emphasizing size, strength, and value. When the crisis became apparent and consumers started spending less, GM’s sizeable book leverage of 0.259 (See Appendix A) multiplied the impact of the crisis on GM. Further impacting GM in 2007 was a new agreement with the Canadian Autoworkers’ union, who refused to make any concessions for GM regardless of the state of the economy, as well as drastically increasing oil costs. Due to these events, GM thereafter experienced major falls in net profit margin and ROA (See Appendix A) in 2007, 2008, and in the first half of 2009. From 2006 to 2009, it can be seen in GM’s increasi...


... middle of paper ...


...d on the other hand, posted a profit.

Future Outlook
For the past many years, the American automotive companies rode the economic booms and success that was built by them long ago. They also knew that the American governments employ the “Too Big to Fail” philosophy, believing companies that are too large and too interconnected to the economy are too valuable to be allowed to fail. It was this lack of incentives that lead to their demise. Apart from ford, the other two big players in the American Automotive industry failed to become competitive and they paid a heavy price. Now that they had their wake up call, consumers can only expect better things in store. The big three now realize that they are no longer untouchable and they must produce efficient cars, in the most efficient manner, and to the demand of their consumers. The consumer has emerged victorious.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

The Auto Industry From 1987-2002 Sheds Light On How Global Competition Impacts Domestic Sector Dynamics And Productivity Growth

- An in-depth case study of the US auto industry from 1987-2002 sheds light on how global competition impacts domestic sector dynamics and productivity growth. Studies of productivity by MGI and others have shown that when new, more productive players enter a sector previously sheltered from global competition, the sector 's overall level of productivity rises. Less clear, however, is what happens at a company level to link cause and effect. Taking US automotive manufacturing between 1987 and 2002 as representative of a sector facing increased competitive intensity, MGI examined how the "Big Three" US automakers responded to more productive Japanese entrants over the period....   [tags: Automotive industry, General Motors, Renault]

Powerful Essays
808 words (2.3 pages)

Challenges of the Automobile Industry of USA Essay

- As we all know, automobile industry plays an important part in the economy of USA; however, this industry is facing some environmental challenges. In this assignment, I would like to discuss about the challenges that the automobile industry of USA is struggling with. Specifically, there are four main challenges that will be looked into details which are global competition, new technology, emission’s effect on the environment and the government’s reaction, and the consumers’ opinion about the products....   [tags: car industry, american automobile, gm]

Powerful Essays
956 words (2.7 pages)

The Crisis Of The Automotive Industry Essay

- A man walks through his door and sits down at scuffed wooden table with his wife. As they sift through a mound of bills for the month the man tells his wife that he has been laid off without pay from his automotive job. Already in rough times, with money already an issue, the man must find a way to provide for his family and not have the house fall into foreclosure. The automotive industry in America controlled our economy and kept it running for many years. High gas prices ruined the industry and crippled our economy....   [tags: Automotive industry, General Motors, Automobile]

Powerful Essays
2468 words (7.1 pages)

Automobile Industry : A Huge Economic Player Worldwide Essay

- The automobile industry is a huge economic player worldwide in terms of revenue and the great number of other industries it directly and indirectly affects. The United States has been at the forefront of the industry since its humble beginnings in the 1900’s. For many years the United States produced more cars than any other country, this has shifted in recent years with stiff competition coming from China and Japan. Sectors within the automobile industry include marketing, maintenance and production....   [tags: Automobile, Automotive industry, Renault, Japan]

Powerful Essays
708 words (2 pages)

Impact of the Recession on the US Auto Industry Essay examples

- Introduction As the nation was introduced into the current recession, the auto industry and its labor was likely hurt more than any other industry. Few years ago it was the homebuilding industry that was troubled the most and held the first place, but it gave that position over to the auto industry the following year. Why was this industry affected more than any other is very interesting and complex situation. There are several factors why there was such a huge negative impact on this industry, its performance, and the labor involved....   [tags: Auto Industry]

Powerful Essays
1759 words (5 pages)

Supply and Demand Determinants in the Auto Industry Essay

- The American auto industry is in a crisis, their vehicles are not in demand and they need government bailouts to keep their businesses afloat. American vehicles are not on demand because people want fuel-efficient, the car companies that are not at the point of bankruptcy, longer lasting vehicles, and hybrid cars. The American car companies are at a point of bankruptcy and people don’t want to buy cars from a company that may not be there in a couple of months. The foreign car companies are doing well and they much more dependable now that we are in an economic crisis....   [tags: Supply and Demand, economy, Auto Industry, ]

Powerful Essays
514 words (1.5 pages)

The Success Of The American Auto Industry Essay

- Introduction The American Auto Industry has been able to adapt to the fierce competition from foreign companies. One way it has done this is through technological advances that have improved the quality of their product while making it environmentally friendly. Despite these changes, it still struggles to retain a strong foothold in customer satisfaction among its consumers. Competition Since the time of Henry Ford in the early 1900’s, the auto industry in the United States enjoyed almost complete supremacy, with little foreign competition....   [tags: Automotive industry, Automobile, Pollution]

Powerful Essays
701 words (2 pages)

Essay on External Analysis Of The Auto Industry

- External Analysis of the Auto Industry Cars play an important role in our lives. Cars allow us to move around in less time than walking and they also give us more autonomy considering that we can go wherever we want. Having a car allows us the convenience that public transportation cannot. Cars have an enormous effect on our lives that we must understand how the auto industry affects or economy. Furthermore, we must be aware of external factors that affect the auto industry. Having knowledge of the environmental factors influencing the automotive industry allows us to make better decisions when purchasing a vehicle....   [tags: Automobile, Renault, Opel, Automotive industry]

Powerful Essays
1098 words (3.1 pages)

A Report On The Auto Motive Industry Essay

- In 1890’s the Auto motive industry in America started (Wikipedia 2016). The market soon after grew into one of the worlds largest. Americans dominated the industry in the twentieth century, but the blue print for the automobiles was done in Germany and France in the 1800s. By statistics America is the now second largest manufacturer in the world. They have a record of 8-10 million manufactured yearly. In the 1920s the automotive industry in the United States was dominated by 3 companies which included Ford....   [tags: Automotive industry, General Motors, Automobile]

Powerful Essays
783 words (2.2 pages)

The American Auto Industry Essay

- The American auto industry has had a turbulent time now with an ever constant momentum towards vehicles that are cleaner for the environment, without sacrificing the prices the consumers have grown to love, it is going to get even harder if they are unable to adapt. The marketplace for vehicles in the United Sates is insatiable, and the manufacturing of automobiles is of crucial importance to the overall financial stability of the state. However, the paradigm is under attack by foreign threat. Automobile manufactures in the US have mainly focused on their own domestic market whilst other foreign companies have begun forming in the US....   [tags: Automobile, Automotive industry, Hydrogen vehicle]

Powerful Essays
745 words (2.1 pages)