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    US Automotive Crisis

    For a long time the US automotive industry has been a source of national pride. From the time that Henry Ford implemented assembly production of the Ford Model T, making automobiles affordable for the general population, Americans have beamed with pride in their rich motor producing heritage.

    As recently as 2005, the US was still the top motor vehicle producing country in the world. They have since slipped to second on the list, behind Japan. According to Wikipedia the US produced 10.8 million vehicles in 2007, behind Japan’s 11.6 million. This is down 11.01% since 2003, while Japan’s production increased by 12.74% over the same period. Other Asian countries have also upped their production over this period, with China doubling production to 8.9 million cars over this period, and South Korea increasing production from 3.2 million units to 4.1 million from 2003 – 2007.

    Reasons for the declining production in the US can possibly be attributed to several factors. Firstly, the US is an extremely wealthy nation (as measured by per capita GDP) which has historically had a culture of car ownership. According to the US Bureau of Transit Statistics for 2006 there were over 250 million registered vehicles in the US (Wikipedia) which equates to a penetration level of around 83% of the 300 million US population. As penetration levels increase the opportunity to increase sales at a rate faster than the population growth rate becomes more difficult.

    Secondly, the US automotive industry isn’t globally competitive as a result of higher wage costs, and less efficient methods. The higher per unit wage can be partly attributed to the unionised labour force, which is much less competitive than the Asian countries. As a result, importing cars is often more cost effective unless the government heavily subsidizes the industry or imposes import duties on the imported vehicles.

    Finally, the massive increase in the oil price over the last 6 years or so (notwithstanding the massive fall in price since June) has resulted in the affordability of cars decreasing. It will be interesting to ultimately see what the final production figures are for 2008.

    The credit crunch hit an already ailing industry (General Motors’ share price fell by 66.8% from 28 April 2000 – 27 July 2007 – before the sub-prime crisis began) and its share price is now nearly 96% off its 2000 high (Ford has fallen 91.8% since its 1999 high), and 87% lower than it was before the beginning of the sub-prime crisis.

    While the industry is clearly struggling, there is the political will (at least from the Democrats) to prevent the ‘Big Three’ (a moniker that refers to Ford, General Motors, and Chrysler) from going under. Some economists estimate that as many as 3 million jobs will be lost if these companies go under, as it’s not only their employees that will lose their jobs, but their suppliers and other related businesses will go under. While short term pain can be avoided if some form of bailout is passed (it was turned down last week) there are some that are questioning whether protecting the industry will ultimately be the optimal decision for the long term economic health of the nation.

    Ultimately the result of current negotiations will be a balance of political and economic considerations, and will undoubtedly have a large impact, whatever the outcome.

    Enjoy your public holiday!

    Take care,

    Mike Browne
    021 9144 966

    Source: Wikipedia.org

    Permalink2008-12-15, 16:10:15, by Mike Email , 1 comment
    Trackback address for this post: http://blog.sharenet.co.za/htsrv/trackback.php/1074

    Comments, Trackbacks:

    Comment from: Automotive Accessories [Visitor] Email · http://automotiveaccessorie-s.com/automotive-accessories
    This is one of the most informative sites that I have seen. Thanks for all the good info
    PermalinkPermalink 2009-03-03 @ 16:25

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