AUTOMOBILE INDUSTRY CRISIS 2008-2010

NAME ROLL NO.

HARSH ADHIYA 01

KESHAV AGARWAL 02

NEIL GALA 09

ABHISHEK OZA 20

YATIN PRABHU 25

DHAWAL SOLANKI 29

PRESENTED BY

The automotive industry crisis of 2008–2010 was a part of a global financial downturn.

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 trucks 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.

INTRODUCTION

Corporate-government created the three major causes of the auto industry crisis:

1) Health Care

2) Credit Crunch

3) Low efficiency cars

CAUSE

Health care is an out of control cost where double digit annual price increases are more common than rare

Every business small and large has struggled with paying the health insurance costs of their employees.

A mega-corporation like General Motors sees those problems amplified.

GM spends $5 billion annually on health care for 1.2 million people – only 150,000 of whom work for the company.

This reality alone makes it virtually impossible for GM to have a successful economic model and it is not something GM can fix.

HEALTH CARE

The credit crisis is also not the fault of the automobile industry.

The cause of the credit crisis falls back on bad government that allowed the stock market to be turned into an unregulated casino.

The Federal Reserve, Treasury Department, Congress and regulators failure to apply basic regulation to the financial markets and money supply are to blame.

CREDIT CRUNCH

The third cause, inefficient 20th Century automobiles rather than forward looking efficient 21st Century green cars is a shared error of government and the auto industry.

The Congress did not have the political will to demand energy efficiency, indeed they provided a tax credit for SUV purchases

LOW EFFICIENCY CARS

The impact of the crisis on the automotive industry has been more severe than for any other industry except housing and finance.

First, the industry, especially the value chains led by the American Big 3 automakers, was in a dire state to begin with.

This lead to the freezing of credit markets meant cancelled orders, unpaid supplier invoices, and ‘temporarily’ shuttered plants.

EFFECT OF THE CRISIS

Second, the high cost and growing longevity of motor vehicles prompted buyers to postpone their purchases.

Consumers in the United States, found it difficult to obtain loans. Vehicle sales plunged and as a result.

Beginning in the later half of 2008, a global-scale recession adversely affected the economy of the United States. A combination of several years of declining automobile sales and scarce availability of credit led to a more widespread crisis in the United States auto industry in the years of 2008 and 2009.

India: Citing falling production numbers, the State Bank of

India 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.

EFFECT ON THE GLOBAL MARKETS

China: In 2008, the Chinese government reduced automotive

taxes in order to spur flagging sales. In January 2009, Chinese auto-manufacturer CHERY reported unprecedented monthly sales.

Canada: The Canadian auto industry is closely linked to the U.S.,

due to the Automotive Products Trade Agreement and later the North American Free Trade Agreement (NAFTA), and is in similar trouble.

GM and Chrysler not only came out of the restructuring with dramatically lower labor costs, but were also able to close many plants and consolidate production in a tighter geographic area, leading to higher capacity utilization.

Although Ford made it through the crisis without government help, thus skirting Washington’s oversight, it also benefited from the bailout, wringing many of the same concessions from its stakeholders that the other two companies received in bankruptcy.

During the recession, another problem facing the auto manufacturers was an inability to keep their plants running at or near full capacity or pay wages to it’s workers.

STEPS TAKEN TO OVERCOME THE CRISIS

President Bush extended the Troubled Asset Relief Program (TARP)—originally intended only for financial firms—to the desperate carmakers. Chrysler and GM were held to a number of conditions, the most important being that they had to lay out a path toward financial viability, taking into account all current and future expenditures.

The government-backed bailout of Chrysler and GM not only saved two of the United States’ biggest corporations, it also fundamentally altered some crucial characteristics of the U.S. auto industry, helping to bring it in line with foreign competitors.

Conclusion

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