Analysis of the Auto-industry failure

The Auto-industry deals mainly in manufacturing, designing, marketing and selling motor vehicles. Some of the world largest car makers include General Motors (GM), Ford, Toyota, and Mercedes among others. This industry has rapidly grown over the years and this is reflected in the many cars that are produced in a year by different automobile countries across the globe. “In 2008, Toyota was the largest light vehicles producer as 9. 8 million cars were produced, second in line was General Motors with 8. 6 million cars, then Ford and Renault-Nissan each producing 6.

9 million light cars each (Renner, 2009). ” These numbers are increasing even further in the Asian countries like China and India. Motor vehicles consume billions of gasoline and fuel such that, with the increase car usage, the environment is being negatively affected due to excessive consumption of energy and the emission of dangerous gases. This has made social activities take action and that is why there is a slight decline in the services offered by the industry.

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But this is not the real reason as to why the auto-industry is failing.

The world is undergoing a major financial crisis that is slowly catching up with the rest of the world’s auto industries who thought they would not be affected. In 2008, when the prices of oil rose, the auto industry was affected because the cost of raw materials went up and because the consumers were spending less. The increase in the world prices made the consumers to stop purchasing luxury vehicles. Therefore, the cars sold also reduced.

Competition from other forms of transportation for instance rail, air and sea are also affected the sales of auto-vehicles.

These reasons have contributed to the drastic decline in sales as well as production. “Production of passenger vehicles and light trucks declined from 70. 9 to 68. 1 million units between 2007 and 2008 sales fell from 69. 5 to 66. 3 million in the same period. The London-based IHS Global Insight Automotive Group forecasts the decrease in production to be about 59. 8 M and sales are likely to fall to about 59. 2 million in 2009 (Renner, 2009). ” It is projected that in the coming years, about half of the US light vehicle plants will be shut down if the problems persist.

This will in turn mean that more people stand to lose their jobs increasing the number of unemployed people in the country. The crisis in the auto industry was first felt in the United States but other car manufacturers in Europe and parts of Asia are also feeling the impact. The oil crisis between the years 2003-2008 hit the US industry hard and this made big automobile companies such as General Motors and Chrysler sales of trucks and Sport Utility Vehicles to go down. As much as some companies said that the cars they were producing were fuel friendly, these strategies seemed not to bare any fruits as the impact was the same.

On top of this, laborers in the industry demanded higher wages inclusive of pensions and health care benefits an when the managers did not agree to their demands, conflicts emerged thus making them to agree to their please by offering uncompetitive costs that did not benefit the business much. The global crisis that is being faced at the moment has made things worse because with fewer materials and few skilled workers, little can be done to enhance production. The Financial Global Crisis and its Impact on the Auto Industry

At the beginning of 2009, all car manufacturing companies all over the world were having a hard time increasing their sales if they wanted to make any profits. In order to solve the problem, they needed to formulate better marketing strategies so as to persuade consumers. This is why some manufacturers have decided to offer great discounts to boost their sales despite the crisis. For instance, a company like Hyundai is allowing its clients who have bought their cars on loan to return them incase they lose their jobs.

But most leaders see these strategies as they are not going to help much as the root causes of the problems need to be dealt with fast. Some leaders especially those at the white house say that the problems facing the auto-industry are escalating especially at this moment because they have not restructured themselves to formulated proper business plans. That is why ultimatums are being set in the U. S to be able to keep these companies in check.

For example, Chrysler is being told to form a partnership deal with Fiat; an Italian car company, while to restructure General Motors, the company is being told to fire their CEO if they would like to receive the government support (Global Economic Crisis, GM). Opel a German run organization is also counting on government support as its parent company GM cannot fully support it. “Therefore this says that if a major company like GM which operates in 41 countries is affected, all the other countries where it operates in will also be affected (Popular Mechanics, 2009).

” Expensive spare parts Inflation is on the rise and this means that car assembling companies have also to deal with higher operational costs. These companies are slowly running out business as little activity is taking place at their companies. European auto parts industry has reduced sales as fewer cars are demanded by consumers. This decrease in demand means that the companies such as BMW and Daimler have had to cut on their output and consequently, this means that motor parts suppliers will be hardest hit eventually.

On top of this, the banks are limiting the funds they are making to car parts consumers saying that they are high-risk applicants especially on the loans granted because of the current credit crisis that is affecting the industry. They simply do not want to invest in an industry where they know that it has some potential of collapsing. This means that the auto parts industry will have less capital for operation further enhancing its possibility of increase in unemployment. Many people around the world are employed in the auto parts industry whether directly of indirectly.

“In a country like Germany, the collapse of continual demise of this industry would mean that people would lose most of their work and this is what is echoed by companies like Eugen Klein Gelenkwellen which makes drive-shafts for truck makers MAN and DAF among others (DW staff, 2009). ” The impact of this situation would mean that the whole auto-industry in Germany as well as in other countries that have invested a lot in this industry will be affected. Investment in the in the auto –industry is on the decline.

This is both by foreign, private and public investors. This is attributed first to the lack of financial support from banks and other financial institutions, the policies are being made by specific countries so as to limit the secure their industries and the regulations set don not favour investment in the industry. Impact on the taxpayers The common man is the person who is most affected in the current financial crisis. They have had to restructure the way they spend their money so that they can operate within their personal budgets.

This also means that people are saving more rather than spending so that they can be able to cope with the uncertain future. With the loss of jobs in the auto industry it means that people who had jobs previously now do not have enough money to spend as they are living on their savings. Those who still have their jobs have to pay more in the form of taxes so that they can support the banking system as well as the governments of various countries so that they are able to pay off their debts and reduce their debts hence reduce their budget deficits.

“The Canadian government; that relies on U. S car manufacturers like GM, has said that the loans that will be given to the such companies operating in the country will be unsecured and this in turn means that the Canadian taxpayers arte the ones who are going to feel the burden the most as they have to support most of the countries initiatives (Kennedy, 2009). ” Therefore, the money that the taxpayers are coughing out is being used to revive other sectors of the economy especially the financial sector and only a few incentives are being made to revive the auto industry.

Even though the auto-industry bailout would revive the economy, this would not make a difference for the taxpayers who will still have less to spend on the cars that will be made. This would mean that the sales would still be low. Taxpayers will also be affected because there are many areas that need reforms in the economy and the failure of the industry would mean that a lot of money will be needed to revive it.

This money is limited and that is why most governments are increasing the rates of taxes so that they can cancel out inflation and in return be able to support the failing firms. To protect the interests of the payers, the specific governments in various countries need to properly locate the funds to the firms that need it the most. In the auto- industry, financial support needs to be given to those firms that show potential recovery as they will be more beneficial to the economy especially at this time.

Competition from other modes of transportation As much as most of the problems facing the auto-industry now are because of the global financial crisis, competition from other forms of transportation are contributing to the slow growth of the industry. Air, sea and rail transport have advanced and with competition in their specific industries, the services offered have become better and cheaper. This means that with the current rise in oil prices for fueling motor vehicles, people are using other modes of transportation that are more economical.

If nothing is done to solve the current financial crisis, individuals will not purchase cars as they will be expensive to maintain. Effect on least developing economies When major countries are hardest hit financially, the impact slowly trickles down on the least developed economies that usually depend on them for aid as well as continued investment in their countries. With the current financial global crisis, most developed economies like the U. S, are restructuring themselves so that they are able to support their citizens secure jobs and also purchase more products.

This will in turn mean that as they are cutting on certain initiatives to support such endeavors, they will have to reduce their support to in the least developed economies that are also struggling with the current situations. Since the auto-industry is highly integrated with many people either as specialists or laborers employed in the industry, most developing economies are also cutting off workers in the auto industry thus raising the unemployment rates to extreme levels. These economies on top of not having raw materials, they have limited experts to help them improve on their sales.

Recommendations In order to salvage the failing auto industry, the government needs to focus its efforts in assisting this industry through this global crisis as it is doing with other sectors of the economy as it also brings in revenue for individual countries. The auto firms should be allowed access to credit and of possible the interest rates on the loans should be reduced. This will only be possible if the unnecessary regulations are removed. Access to funding will mean that companies will be able to maintain employment.

Another recommendation is that the industry needs to invest in clean technologies as well as fuel-efficient ways as this will help reduce the negative environmental impacts. These strategies are good short term solutions that if well implemented and evaluated, they are able to strengthen the industry through this dark phase and ensure future progress. Conclusion Though the auto-industry is faced with many challenges, if proper supportive mechanisms that seek to stimulate market demand and access to financial resources are used, the industry is will be able to deal with the various problems better.

This therefore means that the top managers of such organizations need to ensure that they plan their operations better in line with the current economic situation and that their activities are well coordinated. The auto industry is not doomed for failure; it is just undergoing a period of change which if well managed, will determine its future progress as well as the thousands of people who rely on it for employment.

Works Cited DW staff http://www. dw-world. de/dw/article/0,,3870900,00. html Retrieved on April 13, 2009 Global Economic Crisis.

www. globaleconomiccrisis. com/blog/archives/tag/gm Retrieved on April 13, 2009 Kennedy, G. Liberals seek North American solution to auto crisis http://www. gerardkennedy. ca/newsstory. aspx? id=15699 Retrieved on April 13, 2009 Popular Mechanics. GM in Crisis—5 Reasons Why America's Largest Car Company Teeters on the Edge http://www. popularmechanics. com/automotive/new_cars/4292379. html Retrieved on April 13, 2009 Renner M. world watch institute March 17, 2009 http://www. worldwatch. org/node/6045 Retrieved on April 13, 2009