These three American automobile manufacturers were once the largest automakers in the world before they collapsed on the verge of bankruptcy during the 2008-2009 automobile industry crisis.
The competition from foreign automakers like Toyota, Honda, and BMW threatened the position of the big three in the domestic market. General Motors outsold all car manufacturers for 77 straight years until the streak was stopped by Toyota in 2008. Second-ranked Ford also gave its position to Toyota in 2007, and Honda overtook Chrysler for the fourth spot in 2008 sales. At the end of 2008, the top five automakers in terms of sales were Toyota, General Motors, Ford, Honda, and Chrysler. This shows that American made cars lost consumer confidence in the face of cheaper, more reliable, and more fuel-efficient vehicles produced by foreign competitors
Cause Of Automotive Industry Crisis
The collapse of the big three is the biggest effect from a larger automotive industry crisis in 2008-2009. This crisis is a financial crisis affecting not only the United States, but also Canada, Europe, Japan, and India.
The cause for the crisis required an understanding of many dimensions. The big three companies were faced with a series of economic events that led to unfavorable conditions for the industry. In addition, structural problems within these companies, some dating back from the 1970's, delivered the final blow for the collapse of the big three.
2003-2008 Oil Crisis And Dwindling Sales Of American Made Cars
The automotive industry was first weakened by the sudden increase of global oil prices. The rise in oil prices is the effect of the oil crisis of 2003-2008. During the oil crisis, volatile prices of oil climaxed to a record $170 per barrel in July 2008, before sliding down to $60 per barrel in the months after breaking the record price. Prices at the U.S. gas pump peaked at $4 per gallon.
The sharp increase in oil prices hurt the automobile industry, but the big three received the biggest blow in the crisis. The big three wrongly projected that consumers would continue to buy large sedans and sports utility vehicles, and structured their R&D into developing new SUV models. Meanwhile, Toyota made serious inroads in electric vehicles and fuel-efficient compact cars. SUVs boomed in the 1990’s, which encouraged the big three to produce more SUVs.
Toyota introduced the Toyota Prius in the early 2000’s and made modest sales. However, when the oil crisis hit, the Prius quickly became the fastest selling car model along with other Toyota and Honda car models with high fuel efficiency. American made cars from the big three suffered great losses from dwindling sales since no one wanted to buy large SUVs with poor fuel efficiency ratings.
The big three answered the challenge by developing hybrid engines on their own, but it clearly became evident that Toyota and Honda were ahead in the technology. The Prius and Honda's 2009 Insight were the top selling hybrid cars in the last couple of years. If the oil crisis does blow over, perhaps the average U.S. consumer will have no need for more expensive hybrid cars. However, the scenario indicated that American made cars are well behind in the newest market trends, which are compact vehicles with hybrid engines.
Labor Cost Disadvantage
The assembly plants of the big 3 also faced severe disadvantages in human input cost compared to Japanese automakers. Workers from the big 3 plants were unionized, which forced the hand of the Big Three to support their employee’s health care and other benefits. American minimum wage is also much higher compared to the wages of factory workers from Asia. This allowed Japanese automakers to produce better cars at more affordable prices. Reports estimated that Toyota earned $350 to $500 more in profit margins per vehicle. American made cars were simply more expensive and way behind in competitiveness because of labor cost disadvantages.
2008 Financial Crisis
The final blow to American made cars was the 2007 Sub-Prime Crisis and the 2008-2009 Financial Crisis. The credit crunch and money-tightening put pressure on the prices of raw materials. American consumers have to deal with unemployment and high prices of food sharply decreasing the demand for vehicles. All companies in the automotive industry, including Toyota and Honda suffered a sales decline because of the crisis. But, the big three were given the deathblow when the sharp decrease in sales in 2008 led them to near-bankruptcy. General Motors, once the most dominant car manufacturer in the world, and an icon for American made cars, finally filed Chapter 11 bankruptcy and is ongoing a major restructure as of July 2009.
The Rebirth Of American Made Cars After The Crisis
The Big Three car manufacturers not only represent a large chunk of the domestic auto industry, but also serve the American public by providing millions of jobs. The effect of their total collapse could shut down other businesses in the industry and endanger additional millions of jobs.
To solve the crisis, the U.S. Federal government offered loans to save the big 3 and their employees. In exchange for the loans, the big 3 promised a series of reforms to improve their standing. The Ford Motor Company introduced an aggressive plan to bring better and cheaper American made Ford cars to its fleet of vehicles. Ford will offer an all-electric van type vehicle to rival the Toyota Prius in 2010, followed by electric-powered sedans in 2011. Ford also vowed to be aggressive in the hybrid vehicle market with a new line of hybrid cars in 2011.
General Motors released the Chevy Volt, which is its flagship entry to the hybrid market. This vehicle can travel up to 40 miles in all-electric mode. General Motors will also release 15 new hybrid car models by 2012, and vowed to cut production of the Pontiac product line and other models to consolidate and streamline their production of quality hybrid vehicles. Chrysler was saved from complete liquidation through reorganization under Italian manufacturer, Fiat, and the U.S. government.
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