The Road Ahead for the U.S. Auto Market

Manufacturing & Services Office of Aerospace and Automotive Industries

U.S. Department of Commerce March 2008

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Table of Contents

Executive Summary .........................................................................................................................3 Introduction ......................................................................................................................................5 2008 Forecast ...................................................................................................................................6 Restructuring of the Detroit 3 ..........................................................................................................6

General Motors ....................................................................................................................7 Ford ......................................................................................................................................8 Chrysler ..............................................................................................................................10

Motor Vehicle Employment ..........................................................................................................11 Detroit 3s 2007 UAW Contract ....................................................................................................12 Health Care ....................................................................................................................................14 U.S. Light Vehicle Production .......................................................................................................15 U.S. Light Vehicle Sales ................................................................................................................15 Energy & Environmental Issues ....................................................................................................17 Rebates/Incentives .........................................................................................................................18 Product Changes & new Investments ............................................................................................18

General Motors ..................................................................................................................19 Ford ....................................................................................................................................21 Chrysler ..............................................................................................................................24 Toyota ................................................................................................................................25 Honda .................................................................................................................................27 Nissan .................................................................................................................................29 BMW..................................................................................................................................30 Daimler & Mercedes ..........................................................................................................31 Volkswagen........................................................................................................................32 Hyundai-Kia .......................................................................................................................32

Innovation ......................................................................................................................................34 U.S. Plant Capacity ........................................................................................................................37 Trade Overview .............................................................................................................................38

U.S. Exports .......................................................................................................................38 U.S. Imports .......................................................................................................................39

China ..............................................................................................................................................39 Korea ..............................................................................................................................................40 Japan ..............................................................................................................................................42 India ...............................................................................................................................................43 NAFTA ..........................................................................................................................................44 Road Ahead ....................................................................................................................................46 Fact Sheet .......................................................................................................................................49 Tables .............................................................................................................................................51 Charts .............................................................................................................................................59

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Executive Summary

Domestic Trends The U.S. market for cars and light trucks declined slightly for the second year in a row to almost 16.1 million vehicles in 2007, but overall sales remained strong, marking the ninth consecutive year with sales above 16 million units. Although light trucks still accounted for over half of the U.S. passenger vehicle market in 2007, sales declined for the third straight year. Sales of passenger cars also declined after increasing for the previous two years. Cross utility vehicles sales increased, but sales in every other light truck segment (sport utility vehicles, pickup trucks and vans) decreased. Sales of hybrid vehicles increased significantly, up 40 percent, to reach 350,000 vehicles. This hybrid trend is likely to continue as more manufacturers introduce new hybrid and alternative fuel products in the coming months and years. With increased competition, the combined market share of the Detroit 3 (GM, Ford and Chrysler) continued to fall, decreasing from 71.3 percent in 1997 to 50.9 percent in 2007. The loss of North American profitability and the need to control legacy costs led GM and Ford to announce massive restructuring plans in late 2005 and during 2006. After being sold by Daimler, Chrysler also announced restructuring plans in February 2007. Meanwhile, foreign competitors continue to invest in U.S. auto assembly plants and their individual, as well as cumulative U.S. market share continues to grow. Japanese brands had a 37.2 percent market share, and German brands had 5.9 percent in 2007. The Korean manufacturers, in particular, continue to make inroads in the U.S. marketplace with their market share growing from 2 percent in 2000 to 4.8 percent in 2007. International Trends The U.S. light vehicle trade deficit remained the highest in the world; however, it decreased in 2007 by 10.4 percent to almost $97 billion (this is related to the dollars decline in the global currency market). U.S. light vehicle exports increased 26.1 percent in 2007 to reach $50.7 billion, and imports decreased 0.5 percent to $147.6 billion, with a substantial portion of U.S. auto trade being intra-NAFTA. During 2007, imports from Japan remained flat, increasing by 0.5 percent, imports from Korea decreased by 5 percent, and imports from Germany decreased by 8 percent. Capacity U.S. light vehicle manufacturing capacity has slightly increased over the last decade, up from 12.91 million units in 1996 to 12.95 million units in 2006. In 2006, the Harbour Report showed that average capacity utilization was 83.9 percent. However, there are large differences among individual plants. Reductions in the Detroit 3s production will only be partially offset by new investments from foreign-affiliated firms.

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Outlook Market analysts are forecasting U.S. vehicle sales and overall production volumes in 2008 to be lower than in 2007, citing record oil prices, a housing slump, and consumers decreased confidence in the economy. GM, Ford, and Chrysler will continue to implement their restructuring plans and battle for market share. In addition, the industry faces a growing consumer interest in fuel-efficient vehicles, stricter fuel economy regulations, and increased North American production from the Japanese, German, and Korean automakers.

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The Road Ahead for the U.S. Auto Industry 2008

Introduction Despite the ninth straight year of sales levels above 16 million vehicles, it was another difficult year for some of the individual automakers, particularly the Detroit 3. The domestic automakers continued to restructure their North American operations in order to meet challenges such as U.S. market share loss to foreign competitors, and high legacy and commodity costs. During the fall of 2007, labor negotiations were held between each of the Detroit 3 and the UAW. The resulting landmark contracts, which will reduce the Detroit 3s workforce, wages, and healthcare costs, will improve the automakers competitiveness and save the companies approximately $1,000 per vehicle. In 2007, U.S. light vehicle sales totaled 16.1 million uni