The Economic Crisis of the Automobile Industry Finance Essay

The recent economic crisis has taken a toll on various forms of business, causing companies to incur substantial losses and even causing some companies to go out of business. The economic crisis caused millions of people across the United States to lose employment, and employment opportunities became scarce worldwide. The impact of the automobile industry during the economic crisis affected the companies known as The Big Three Companies. These companies which include General Motors, Ford and Chrysler became targets during the economic crisis. The companies lost substantial amounts of revenue, and some were even forced to file bankruptcy. The financial standpoints of The Big Three Companies, now called The Detroit Three are looking better. General Motors, Ford, and Chrysler are paving their way in the future developing plans for vehicles that will meet the needs of all consumers. The recent economic crisis has taken a toll on various forms of business, causing companies to incur substantial losses and even causing some companies to go out of business. The economic crisis also had a great impact on potential employment opportunities. Millions of people across the United States, either loss their positions as an end-result of the economic crisis or took a pay cut to keep from being terminated from positions. Along with this, the automobile industry was impacted by the economic crisis. The US economic crisis hit the common man the most, reducing the quantum and quality of lifestyle greatly. Home and investments plunged, putting statistical pressure on the labor market.[8] The main features of the US Economic Crisis include the following: Payroll Decline Loss of more than 4.4 million jobs Sharp contraction within the labor market Increase in involuntary part-time job slots and underemployment Drop in average hourly earnings Reduced consumer spending[8] Not only was the automobile industry affected by the six main features listed above, Gross Domestic Product, also known as GDP, had a major affected on the economy. [8] By definition, Gross Domestic Product, GDP, is a measurement of a country’s overall official economic output.[9] The economic crisis caused spending by consumers and businessman to cease, and monetary policy rates were suspended at a near-0. Construction-based company and related employment dropped considerably. [8] Retail trade and the hospitality segment were hit by a “non-essential” spending habit. Within the automobile industry, temporary employment and labor intensive processing couldn’t salvage the aggregate earnings or input. [8] The automotive industry crisis was a part of a global financial downturn. This downtown included a decrease in automobile sales and a decrease in revenue resulting from the sale of automobiles. The purchase of SUV vehicles decreased dramatically due to the increase in gasoline prices. Consumers being to look more for the gas-efficient automobiles oppose to the luxury vehicles. The luxury vehicles, such as the sport utility vehicles (SUVs), were now seen as gas-gusselers. The automobile economic crisis not only affected the United States manufacturing industry, but the European and Asian automobile industry was affected as well. The automotive industry was weakened by a substantial increase in the prices of automotive fuels linked to the energy crisis of 2003-2008.[1] In the mid-2008, the United States was adversely affected by the global-scale recession. The recession included a combination of declining automobile sales over a period of several years as well as a minimum availability of credit issued by lenders. This shortcoming lead to a widespread crisis in the United States auto industry between 2008 and 2009. [4] This crisis led consumers to become discourages when looking to purchase vehicles such as sport utility vehicles (SUVs) and pickup trucks causing manufacturers to lean in the direction of a low-fuel economy.[1] In the latter half of 2008, the economic crisis situation turned critical as the credit crunch placed pressure on the prices of raw materials. [1] Automobile companies in North American, Europe, Asia, and other areas worldwide began to implement marketing strategies to entice consumers as the percentage of vehicle sales being to decline tremendously..[1] Major manufacturers, including the Big Three, now known as the Detroit Three: General Motors (GM), Ford Motor Company, and Chrysler, and Toyota offered various discounts across their fleet of non-selling vehicles. The Big Three Companies were putting campaigns in place to appeal the the average consumer, however enlight of the financial crisis, critics criticize their antics, calling them irresponsible due the standing situation of the rising fuel prices.[1] North American consumers turned to higher-quality and more fuel-efficient product of Japanese and European automakers. 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. [1] The crisis in the United States is mainly defined by the government bailouts of both General Motors 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. [1] The bridging loans lead to greater scrutiny of the US automotive industry in addition to criticism of their product range, product quality, high labor wages, job bank programs, and healthcare and retirement benefits. [1] Following dramatic drops in automobile sales throughout 2008, each of the “Big Three” U.S. automakers requested emergency loans in order to address impending cash shortages. By April 2009, the situation had worsened such that both GM and Chrysler were faced with imminent bankruptcy and liquidation.[4] General Motors, alone, lost $30.9 billion in 2008. Its fourth quarter loss was $9.6 billion, a decline of 39 percent in revenue. It sustained losses in North America and the rest of the world, burning a big hole in its cash serves. The corporation ended 2008 with about $14 billion in cash, which is close to the minimum amount of cash GM claims it needs to fund its operations.[10] With the intent to prevent massive job losses and destabilizing damage to the entire manufacturing sector, the U.S. and Canadian governments controversially provided unprecedented financial bailout support to allow the companies to restructure and jettison legacy debt via Chapter 11 bankruptcy. Both companies separately filed for this protection by June 1. [4] General Motors emerged from bankruptcy as a new company majority owned by the United States Treasury, and Chrysler emerged owned primarily by the United Auto Workers union and by Italian automaker Fiat S.p.A.. [4] Both companies terminated agreements with hundreds of their dealerships and GM discontinued several of its brands as part of bankruptcy proceedings. Ford Motor Company was able to survive without entering bankruptcy partly due to a large line of credit which it obtained in 2007. [4] The U.S. automakers were more heavily affected by the crisis than their foreign counterparts, such as Toyota. Following the 2000s energy crisis, the U.S. automakers failed to produce more fuel-efficient vehicles as opposed to the high-profit sport utility vehicles that were popular in the late 1990s and early 2000s which led to excess inventory and undesirable product. Since the automotive crisis abated, all three American automakers have increased sales of vehicles and have posted a profit. [4] By the summer of 2010, the gloom over the American auto industry started to lift. Jobs were growing, and factory workers were anticipating their first healthy profit-sharing checks in years. Sales rebounded, with the Commerce Department calling automobiles a bright spot in July’s mostly disappointing retail sales.[11] Ford was the first of the three to bounce back. Ford never asked for cash assistance from the government, since they had set aside $25 billion for a turnaround fund.[11] Ford Motor Company has unveiled an aggressive plan to electrify its fleet of vehicles, including plans to offer an all-electric van-type vehicle in 2010 for use in commercial fleets, complemented by a battery-powered sedan in 2011. [4] The company has plans to bring to market a family of battery electric vehicles, regular hybrids, and plug-in hybrids, by year 2012. General Motors unveiled the production of a vehicle that will be able to travel up to 40 miles in an all electric-mode. GM is scheduled to release the Chevy Volt this September, and future plans include launching predominately fuel-efficient cars and crossovers over the next four years. [4] Chrysler LLC plans to launch smaller, fuel-efficient vehicles in the future. Chrysler plans to launch a new hybrid vehicle this year, the Dodge Ram hybrid, as wells the first electric-drive vehicle. Along with the new hybrid vehicle in 2010, Chrysler also plans to offer three additional electric-drive vehicles this year. In the near future, or by 2012, Chrysler plans to add flex-fuel capabilities to half of its vehicular fleet.[4] With all of the ups and downs that that automobile industry has face during the economic crisis, the companies are aiming for stability. The Big Three companies, now known as the Detroit Three, didn’t take the experience of the economic crisis lightly. General Motors, Ford and Chrysler have taken steps to secure the future, as well as create products that meet the needs of its current consumers and future consumers now as the economy finds its way back to where it was. Each company is now making plans to offer my fuel-efficient vehicles and vehicles that not only speak for the company, but also reach the needs of the consumers.References: Automotive industry crisis of 2008-2010. (2010, September 3). In Wikipedia, The Free Encyclopedia. Retrieved 17:56, September 5, 2010, from https://en.wikipedia.org/w/index.php?title=Automotive_industry_crisis_of_2008%E2%80%932010&oldid=382627701 “Big Three Bailout? Not So Fast”. CBS News. 2008-11-12. https://www.cbsnews.com/stories/2008/11/12/politics/otherpeoplesmoney/main4595068.shtml. Retrieved August 27, 2010 Tucker, Sean. “Auto Bailout”. U.S. News Rankings and Reviews. https://usnews.rankingsandreviews.com/cars-trucks/Auto-Bailout Retrieved August 27, 2010 Effects of the 2008-2010 automotive industry crises on the United States. (2010, September 3). In Wikipedia, The Free Encyclopedia. Retrieved 18:57, September 5, 2010, from https://en.wikipedia.org/w/index.php?title=Effects_of_the_2008-2010_automotive_industry_crisis_on_the_United_States&oldid=382632717 Big Three (automobile manufacturers). (2010, September 4). In Wikipedia, The Free Encyclopedia. Retrieved 19:58, September 5, 2010, from https://en.wikipedia.org/w/index.php?title=Big_Three_(automobile_manufacturers)&oldid=382960142 “Timeline: Big Three Automakers’ Recent Troubles.” PBS News Hour. 2009-07-10. https://www.pbs.org/newshour/updates/business/jan-june09/auto_timeline_03-30.html Isidore, Chris, “Turnaround for Big Three automakers? Not so fast.” CNNMoney.com. 2010-04-30. https://money.cnn.com/2010/04/30/news/companies/big_three_turnaround/index.htm “US Economic Crisis: Impact on Automobile Industry” Buzzle.com Intelligent Life on the Web. https://www.buzzle.com/articles/us-economic-crisis-impact-on-automobile-industry.html Retrieved 2010-08-30. Gross domestic product. (2010, September 1). In Wikipedia, The Free Encyclopedia. Retrieved 13:02, September 2, 2010, from https://en.wikipedia.org/w/index.php?title=Gross_domestic_product&oldid=383049591 Rosenfield, Herman, “The North American Auto Industry in Crisis.” 2009-06-08. Retrieved September 2,2010, from https://monthlyreview.org/090608rosenfeld.php Automotive Industry Crisis, The New York Times. Retrieved September 2, 2010, from https://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/auto_industry/index.html

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