The automotive industry crisis of 2008–2010 formed part of the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
and the resulting
Great Recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
. The crisis affected European and Asian automobile manufacturers, but it was primarily felt in the American
automobile manufacturing industry. The downturn also affected Canada by virtue of the
Automotive Products Trade Agreement.
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
A sport utility vehicle (SUV) is a car classification that combines elements of road-going passenger cars with features from off-road vehicles, such as raised ground clearance and four-wheel drive.
There is no commonly agreed-upon definitio ...
(SUVs) and
pickup trucks which have low
fuel economy. The popularity and relatively high
profit margin
Profit margin is a measure of profitability. It is calculated by finding the profit as a percentage of the revenue.
\text = =
There are 3 types of profit margins: gross profit margin, operating profit margin and net profit margin.
* Gross Pro ...
s of these vehicles had encouraged the American "
Big Three" automakers,
General Motors,
Ford
Ford commonly refers to:
* Ford Motor Company, an automobile manufacturer founded by Henry Ford
* Ford (crossing), a shallow crossing on a river
Ford may also refer to:
Ford Motor Company
* Henry Ford, founder of the Ford Motor Company
* Ford F ...
, and
Chrysler to make them their primary focus. With fewer fuel-efficient models to offer to consumers, sales began to slide. By 2008, the situation had turned critical as the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
placed pressure on the prices of
raw materials.
Car companies from
Asia
Asia (, ) is one of the world's most notable geographical regions, which is either considered a continent in its own right or a subcontinent of Eurasia, which shares the continental landmass of Afro-Eurasia with Africa. Asia covers an are ...
,
Europe
Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a subcontinent of Eurasia and it is located entirel ...
,
North America, and elsewhere have implemented creative marketing strategies to entice reluctant consumers as most experienced double-digit percentage declines in sales. Major manufacturers, including the Big Three and
Toyota
is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on . Toyota is one of the largest automobile manufacturers in the world, producing about 10 ...
offered substantial discounts across their product lineups. The Big Three faced criticism for their mix of available vehicle types offered, which faced criticism for being ill-suited to a climate of rising fuel prices. North American consumers turned to smaller, cheaper, more fuel-efficient imports from
Japan and
Europe
Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a subcontinent of Eurasia and it is located entirel ...
.
Asia
China
In 2008, the Chinese government reduced automotive taxes in order to spur flagging sales.
In 2008, a
plug-in hybrid version of the
BYD F3 compact sedan was introduced, the world's first
production model plug-in hybrid car.
In January 2009, Chinese auto-manufacturer
Chery
Chery Automobile Co. Ltd., trading as Chery and sometimes known by the pinyin transcription of its Chinese name, ''Qirui'' (), is a Chinese state-owned automobile manufacturer headquartered in Wuhu, Anhui, China. Founded in 1997, it is curr ...
reported unprecedented monthly sales.
(See also
Automobile industry in China
The automotive industry in China has been the largest in the world measured by automobile unit production since 2008. Since 2009, annual production of automobiles in China accounted for more than 32% of worldwide vehicle production, exceeding b ...
)
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
Tata Motors Limited is an Indian multinational automotive manufacturing company, headquartered in Mumbai, India, which is part of the Tata Group. The company produces passenger cars, trucks, vans, coaches, buses.
Formerly known as Tata Eng ...
conducted a widespread marketing campaign heralding the debut of the
Tata Nano
The Tata Nano is a compact city car that was manufactured and marketed by Indian automaker Tata Motors over a single generation, primarily in India, as an inexpensive rear-engined hatchback intended to appeal to current riders of motorcycles a ...
. Billed as "the people's car", the manufacturer hopes the low cost will encourage customers to purchase the vehicle despite the ongoing credit crisis.
Japan
With high gas prices and a weak US economy in the summer of 2008,
Toyota
is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on . Toyota is one of the largest automobile manufacturers in the world, producing about 10 ...
reported a double-digit decline in sales for the month of June, similar to figures reported by the
Detroit Big Three. For Toyota, these were attributed mainly to slow sales of its
Tundra pickup, as well as shortages of its fuel-efficient vehicles such as the
Prius
The is a car built by Toyota which has a hybrid drivetrain, combining an internal combustion engine with an electric motor. Initially offered as a four-door sedan, it has been produced only as a five-door liftback since 2003.
In 2007, th ...
,
Corolla and
Yaris. In response, the company has announced plans to idle its truck plants, while shifting production at other facilities to manufacture in-demand vehicles. On December 22, 2008, Toyota declared that it expected the first time loss in 70 years in its core vehicle-making business. Loss of $1.7 billion, in its group operating revenue, would be its first operating loss since 1938 (Company was founded in 1937). Toyota saw its sales drop 33.9 percent and Honda Motor by 31.6 percent.
On 5 December 2008
Honda Motor Company announced that it would be exiting
Formula One
Formula One (also known as Formula 1 or F1) is the highest class of international racing for open-wheel single-seater formula racing cars sanctioned by the Fédération Internationale de l'Automobile (FIA). The World Drivers' Championship, ...
race with immediate effect due to the 2008 economic crisis and are looking to sell the team. Honda has predicted that there may be reductions among part-time and contract staff. Upper management bonuses would also be reassessed and directors in the company will take a 10 percent pay cut effective January 2009.
Nissan, another leading Japanese car manufacturer, announced that it also would be slashing production and will reduce its output by 80,000 vehicles in the first few months of 2009.
In December 2008,
Suzuki, Japan's fourth biggest car manufacturer, announced that it will cut production in Japan by about 30,000 units due to falling demand. The company is expected to face its first profit drop in eight years for financial year ending in March 2009.
On 16 December 2008,
Fuji Heavy Industries
is a Japanese multinational corporation and conglomerate primarily involved in both terrestrial and aerospace transportation manufacturing. It is best known for its line of Subaru automobiles. Founded in 1953, the company was formerly named ( ...
,
Japan's largest transport equipment manufacturer and the maker of
Subaru brand cars, announced that it would exiting
World Rally Championship
The World Rally Championship (abbreviated as WRC) is the highest level of global competition in the motorsport discipline of rallying, owned and governed by the FIA. There are separate championships for drivers, co-drivers, manufacturers and t ...
at the end of the
2008 championship, "this sudden decision was in response to the
widespread economic downturn that is affecting the entire automotive industry", and came one day after competitor
Suzuki exited the sport.
[ ]World Rally Championship
The World Rally Championship (abbreviated as WRC) is the highest level of global competition in the motorsport discipline of rallying, owned and governed by the FIA. There are separate championships for drivers, co-drivers, manufacturers and t ...
br>WRC.com
.[, ]Fuji Heavy Industries
is a Japanese multinational corporation and conglomerate primarily involved in both terrestrial and aerospace transportation manufacturing. It is best known for its line of Subaru automobiles. Founded in 1953, the company was formerly named ( ...
news release.
Reported in Bloomberg on December 23, 2008, that Mitsubishi Motors is to widen production cuts on falling demand. The Japanese maker of Outlander sport-utility vehicles, will scrap the night shifts at two domestic factories as the deepening global recession saps auto demand. The carmaker will halt the night shift at its Mizushima plant, excluding the minicar line. Nighttime work at the Okazaki factory will stop from February 2. The cuts are part of Mitsubishi's move to reduce planned output by 110,000 vehicles in the year ending March because of tumbling sales in Japan, the U.S. and Europe. Japan's vehicle sales may fall to the lowest in 31 years in 2009, according to the country's automobile manufacturers association. Mitsubishi will also halt production of passenger cars on every Friday next month at the Mizushima factory in western Japan. The Okazaki plant in central Japan will close every Saturday in January and for another five days.
Toyota, on December 22, 2008, slashed profit forecasts amid a sales slump. The Japanese automaker, often held up with Honda as a success story for the rest of the auto industry to follow, said it expected a slim profit margin of US$555 million for the year ending in March 2009. Toyota had originally been projecting a massive profit of $13.9 billion for that period. Their sales in the United States were down 34 per cent and were down 34 per cent in Europe as well. They expected a loss which would be the equivalent of about $2 billion (CDN)." Toyota President Katsuaki Watanabe said the impact on the company from the struggling global economy has been "faster, wider and deeper than expected." "The change that has hit the world economy is of a critical scale that comes once in a hundred years," Watanabe said, speaking in Nagoya.
Facing its first loss in nearly sixty years, Toyota sought loans from the Japanese government.
On November 4, 2009, Toyota announced its immediate withdrawal from Formula One, ending the
team
A team is a group of individuals (human or non-human) working together to achieve their goal.
As defined by Professor Leigh Thompson of the Kellogg School of Management, " team is a group of people who are interdependent with respect to inf ...
's involvement in the sport after eight seasons. See also
2009–2010 Toyota vehicle recalls.
South Korea
South Korean automakers have been generally much more profitable than their US and Japanese counterparts, recording strong growth even in depressed markets such as the United States. Despite a global economic slowdown, Hyundai-Kia successfully managed to overtake
Honda Motor in 2008 as the world's 5th largest automaker, climbing eight rankings in less than a decade. Hyundai-Kia continued its rapid success in 2009, when only a year after overtaking Honda, it surpassed
Ford Motor
Ford Motor Company (commonly known as Ford) is an American multinational automobile manufacturer headquartered in Dearborn, Michigan, United States. It was founded by Henry Ford and incorporated on June 16, 1903. The company sells automobile ...
as the world's 4th largest automaker.
Hyundai-Kia's continued success was unusual at a time when most automakers saw their sales falling sharply, with leading automaker
GM even filing for bankruptcy. Hyundai-Kia took significant advantage of the prolonged automotive crisis by producing affordable yet high quality and well designed vehicles. Rapid globalization has seen state of the art factories being built in several countries including
Slovakia
Slovakia (; sk, Slovensko ), officially the Slovak Republic ( sk, Slovenská republika, links=no ), is a landlocked country in Central Europe. It is bordered by Poland to the north, Ukraine to the east, Hungary to the south, Austria to the s ...
, the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
and
China. The manufacturing facilities have been geared-up to build products that are designed and engineered for local markets. The
Kia Cee'd is a leading example, being designed, developed and engineered in
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
and built in Slovakia.
Unlike others, this crisis turned into an opportunity for many South Korean automakers. Korean automaker
Hyundai offered customers who have lost their jobs to return a new-car purchase for a refund. The continued growth and success is attributable to the country's fuel-efficient and well-equipped, yet affordable cars with generous warranties, such as the
Kia Picanto
The Kia Picanto is a city car that has been produced by the South Korean car manufacturer, Kia, since 2003. Other names of the car include Kia Morning ( ko, 기아 모닝, translit=Gia Moning) in South Korea, Hong Kong, Taiwan (first two generat ...
,
Kia Cee'd and
Hyundai i30
The Hyundai i30 is a small family car manufactured by the South Korean manufacturer Hyundai Motor Company since 2007. The i30 shares its platform with the Kia Ceed, available as a three-door hatchback (2012–2017), five-door hatchback, five-door ...
, which attracted global consumers at a time of severe economic recession, rapidly rising oil prices and increasing environmental concerns. South Korean automakers therefore had a competitive advantage against expensive luxury vehicles and SUVs from US, Japanese and German automakers.
During the fourth quarter of 2008 to the first quarter of 2009, which was the height of this automotive crisis, the extremely weak
South Korean won, especially against the
US dollar
The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
and
Japanese yen, significantly boosted the price competitiveness of South Korean exports in key markets. Another factor that helped maintain this momentum was an increasingly improving brand awareness, attributable to the introduction of the country's own luxury vehicles such as the
Hyundai Genesis and
Hyundai Genesis Coupe
The Hyundai Genesis Coupe is a rear-wheel drive sports coupe from Hyundai Motor Company, first released on October 13, 2008, for the Korean market. It is Hyundai's first rear-wheel drive sports coupe, and shares its basic platform with the Hyundai ...
, which received highly positive awards in the press and reviews. Hyundai's brand grew by 9% in 2008, surpassing
Porsche and
Ferrari, while it used the
Super Bowl football broadcast, the world's most expensive commercial air time, to promote the Hyundai brand in the United States.
Nonetheless, South Korean automakers were not completely immune to this automotive crisis and in December 2008
Hyundai Motor Company had begun reducing production at plants in the U.S., China, Slovakia, India and Turkey because of sluggish demand. The company missed an earlier projection of 4.8 million units for 2008 and announced a freeze of wages for administrative workers and shortened factory operations as demand weakened amid the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
.
South Korea's fourth largest automaker,
SsangYong Motor
The SsangYong Motor Company ( ko, 쌍용자동차 주식회사) is a South Korea–based automobile manufacturer. It traces its origins back to a manufacturer established in 1954. The name SsangYong appeared in 1988, after its acquisition by the ...
, owned by the Chinese automobile manufacturer SAIC (
Shanghai Automotive Industry Corporation
SAIC Motor Corp., Ltd. (formerly Shanghai Automotive Industry Corporation) is a Chinese state-owned automobile manufacturer headquartered in Anting, Shanghai. Founded in 1955, it is currently the largest of the " Big Four" state-owned car manu ...
), is the worst affected company in this crisis as it manufactures mainly heavy petroleum consuming
SUV
A sport utility vehicle (SUV) is a car classification that combines elements of road-going passenger cars with features from off-road vehicles, such as raised ground clearance and four-wheel drive.
There is no commonly agreed-upon definiti ...
s. The carmaker recorded its fourth straight quarterly losses by the end of 2008 with red ink of $20.8 million in the third quarter. Also during the July to September period, sales dropped 63 percent to 3,835 vehicles. Its production lines have been idle since December 17 as part of efforts to reduce its inventory. The automaker has halted production twice previously this year. In December 2008, SAIC gave an ultimatum to the SsangYong union to accept its restructuring plan or face the parent company's withdrawal, which, if implemented, would mean certain bankruptcy.
A 70% share of ''SsangYong'' was acquired by
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
's
Mahindra & Mahindra Limited in February 2011.
However, the South Korean Ministry of Knowledge Economy said that there will be no liquidity provision at the government level for five automakers - Hyundai, Kia, GM Daewoo,
Samsung Renault and Ssangyong."We have no plans to inject liquidity into the carmakers," a ministry official said. "It has been repeatedly made clear."
Taiwan
As part of
Luxgen
Luxgen Motor Co., Ltd. is a Taiwanese automotive manufacturer headquartered in Miaoli County, Taiwan, and a wholly owned subsidiary of Yulon Motor.
Luxgen was founded in 2009, and the company's motto is "Think Ahead." From 2010 to 2020, Lux ...
global expansion, the first overseas sale was made in Oman in 2010, with a plan to focus on the Middle East, Latin America, Central America and South America, Russia, mainland China and Southeast Asia car markets.
Europe
In
Europe
Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a subcontinent of Eurasia and it is located entirel ...
where car sales had also drastically decreased, consideration was being given to financial support for the automotive industry, particularly in
France
France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of overseas regions and territories in the Americas and the Atlantic, Pacific and Indian Oceans. Its metropolitan area ...
,
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
and
Italy
Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
. German Foreign Minister
Frank-Walter Steinmeier
Frank-Walter Steinmeier (; born 5 January 1956) is a German politician serving as President of Germany since 19 March 2017. He was previously Federal Minister of Foreign Affairs from 2005 to 2009 and again from 2013 to 2017, as well as Vice Chan ...
and
Jean-Claude Juncker
Jean-Claude Juncker (; born 9 December 1954) is a Luxembourgish politician who served as the 21st Prime Minister of Luxembourg from 1995 to 2013 and 12th President of the European Commission from 2014 to 2019. He also served as Finance Minister ...
, Luxembourg's Prime Minister and head of the Eurogroup of single currency nations, discussed the possibility of a common rescue package to be agreed by all the
EU member states.
After 6 years of decline, in February 2014 car registration for a year increased to 894,730 vehicles and for subsequent 6 months the sales increased as expected with the price cuts and economic revival.
France
On November 20, 2008, French automobile manufacturer
PSA Peugeot Citroen predicted sales volumes would fall by at least 10% in 2009, following a 17% drop in the current quarter. As a result, it planned to cut 2,700 jobs. On 11 February 2009, PSA announced it would cut 11,000 jobs worldwide. However, none of these are expected to be in France.
Renault
Groupe Renault ( , , , also known as the Renault Group in English; legally Renault S.A.) is a French multinational automobile manufacturer established in 1899. The company produces a range of cars and vans, and in the past has manufacture ...
announced a net profit for 2008 of 599 million euros for the 2008 financial year. This was a 78% drop in profits from the 2007 financial year. European sales fell 4% and worldwide sales 7%, forcing Renault to abandon their 2009 growth targets. This however made Renault one of the few car makers to return a profit. Renault consistently struggled to return profits in the 1990s.
France/Germany
On November 24, 2008,
French President Nicolas Sarkozy and
German Chancellor Angela Merkel agreed to support the crisis-stricken automobile industry in France and Germany. Detailed plans would be announced shortly.
Italy
On December 16, 2008
Fiat in
Italy
Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
announced that it will extend its temporary plant closures in Italy by a month; the Pomigliano d'Arco, the main plant for its
Alfa Romeo
Alfa Romeo Automobiles S.p.A. () is an Italian luxury car manufacturer and a subsidiary of Stellantis. The company was founded on 24 June 1910, in Milan, Italy. "Alfa" is an acronym of its founding name, "Anonima Lombarda Fabbrica Automobili." "A ...
cars will be shut for four weeks.
However, on February 20, 2009, reacting to actions by the Italian government to stimulate the automotive sector, Fiat said its plant closures would be curtailed. The company also forecast that sales in Europe will drop by 14 percent in 2009.
On January 20, 2009 the company announced that it had entered into an agreement, subject to regulatory approvals, to acquire 35% of Chrysler. Fiat's 35% stake in Chrysler would not involve a conventional sale of shares, but would be achieved in return for allowing Chrysler to utilise some of Fiat's fuel efficient technologies (Chrysler's February submission to the U.S. government included a commitment to produce nine Fiat-derived vehicles over a four-year period starting in 2010, including four hybrid-electric and battery-electric models). Chrysler would be accorded access to Fiat's sales outlets in Europe, while in reciprocation Fiat will also gain access to Chrysler's dealership network in the U.S., where it is predicted smaller models such as the
Fiat Grande Punto
The Fiat Punto is a supermini car (B-segment) produced by the Italian manufacturer Fiat from 1993 to 2018, spanning over three generations. The third generation of the car was marketed between 2005 and 2009 as the Grande Punto, and between 2009 ...
may be successful. In the past, Fiat has had trouble gaining a foothold in the American markets, whilst Chrysler has never held a strong market share in Europe since it sold its UK based
Rootes Group
The Rootes Group or Rootes Motors Limited was a British automobile manufacturer and, separately, a major motor distributors and dealers business. Run from London's West End, the manufacturer was based in the Midlands and the distribution and de ...
and
France
France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of overseas regions and territories in the Americas and the Atlantic, Pacific and Indian Oceans. Its metropolitan area ...
based
Simca
Simca (; Mechanical and Automotive Body Manufacturing Company) was a French automaker, founded in November 1934 by Fiat S.p.A. and directed from July 1935 to May 1963 by Italian Henri Pigozzi. Simca was affiliated with Fiat and, after Simca bough ...
to
PSA Peugeot Citroen in the 1980s.
On January 22, 2009, Fiat announced a 19% drop in revenues in the last three months of 2008. Italian Prime Minister
Silvio Berlusconi
Silvio Berlusconi ( ; ; born 29 September 1936) is an Italian media tycoon and politician who served as Prime Minister of Italy in four governments from 1994 to 1995, 2001 to 2006 and 2008 to 2011. He was a member of the Chamber of Deputies f ...
said the government would meet to discuss the issue.
Russia
Russia's automotive industry was hit hard by the
Late 2000s recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...
, which started from
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
. Production of passenger cars dropped from 1,470,000 units in 2008 to just 597,000 units in 2009. Lorry production fell from 256,000 to 91,000 in the same period.
In late 2008, the Russian government introduced protectionistic measures, worth $5 billion, to improve the situation in the industry. This included $2 billion's worth of
bailout
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.
A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global sys ...
s for troubled companies and $3 billion credits to buyers of Russian cars.
Prime minister
Vladimir Putin
Vladimir Vladimirovich Putin; (born 7 October 1952) is a Russian politician and former intelligence officer who holds the office of president of Russia. Putin has served continuously as president or prime minister since 1999: as prime min ...
described the move as vital in order to save jobs. The tariffs for imported foreign cars and trucks were increased to a minimum 50% and 100%, respectively. The tariffs are linked to engine size of the vehicle. The increased duties led to protests in Russian cities, most notably in
Vladivostok
Vladivostok ( rus, Владивосто́к, a=Владивосток.ogg, p=vɫədʲɪvɐˈstok) is the largest city and the administrative center of Primorsky Krai, Russia. The city is located around the Golden Horn Bay on the Sea of Japan, c ...
, as the import of Japanese cars is an important sector of the city's economy.
The most efficient anti-crisis measure executed by the Russian government was the introduction of a
car scrappage scheme in March 2010. Under the scheme, buyers of new cars can receive a subsidy which is 600,000 rubles ($20,000) at maximum.
Sales of Russia's largest carmaker
Avtovaz
AvtoVAZ ( rus, АвтоВАЗ, p=ɐftoˈvas) is a Russian automobile manufacturing company owned by the state. It was formerly named as VAZ ( rus, ВАЗ), an acronym for Volga Automotive Plant in Russian (russian: Во́лжский автомо� ...
doubled in the second quarter of 2010 as a result, and the company returned to profit.
Spain
Spanish automobile manufacturer
SEAT (a subsidiary of the
Volkswagen Group
Volkswagen AG (), known internationally as the Volkswagen Group, is a German multinational automotive manufacturer headquartered in Wolfsburg, Lower Saxony, Germany. The company designs, manufactures and distributes passenger and commercial ...
) cut production at its
Martorell
Martorell () is a municipality that forms part of the Baix Llobregat comarca, in Catalonia, Spain, primarily known for its medieval Devil's bridge. It lies at the confluence of the Llobregat and Anoia rivers.
It has three railway stations - on ...
plant by 5% on 7 October 2008, due to a fall in general sales. This affected 750 employees and continued until July 2009. SEAT is still continuing to install solar panels in its Martorell plant near
Barcelona
Barcelona ( , , ) is a city on the coast of northeastern Spain. It is the capital and largest city of the autonomous community of Catalonia, as well as the second most populous municipality of Spain. With a population of 1.6 million within ci ...
.
Sweden
On December 11, 2008, the
Swedish government provided its troubled auto makers,
Volvo
The Volvo Group ( sv, Volvokoncernen; legally Aktiebolaget Volvo, shortened to AB Volvo, stylized as VOLVO) is a Swedish multinational manufacturing corporation headquartered in Gothenburg. While its core activity is the production, distributio ...
and
Saab
Saab or SAAB may refer to:
Brands and enterprises
* Saab Group, a Swedish aerospace and defence company, formerly known as SAAB, and later as Saab AB
** Datasaab, a former computer company, started as spin off from Saab AB
* Saab Automobile, a fo ...
, with support amounting to
SEK 28 billion (3.5 billion USD). The two companies had requested assistance, faced with the financial difficulties of their U.S. owners Ford and General Motors. The plan consists of a maximum of SEK 20 billion in credit guarantees, and up to SEK 5 billion in rescue loans. On 18 February 2009 General Motors warned
Saab
Saab or SAAB may refer to:
Brands and enterprises
* Saab Group, a Swedish aerospace and defence company, formerly known as SAAB, and later as Saab AB
** Datasaab, a former computer company, started as spin off from Saab AB
* Saab Automobile, a fo ...
may fail within ten days, should the Swedish government not intervene.
On 20 February, an administrator was appointed to restructure Saab and assist in it becoming independent of its troubled parent General Motors. General Motors have confirmed their intention to sell their Swedish subsidiary, Saab. Of Sweden's 9 million population, 140,000 work in the car industry and they account for 15% of exports.
United Kingdom
In the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
,
Jaguar Land Rover
Jaguar Land Rover Automotive PLC is the holding company of Jaguar Land Rover Limited (also known as JLR), and is a British multinational automobile manufacturer which produces luxury vehicles and sport utility vehicles. Jaguar Land Rover is a ...
, now owned by
Tata Motors
Tata Motors Limited is an Indian multinational automotive manufacturing company, headquartered in Mumbai, India, which is part of the Tata Group. The company produces passenger cars, trucks, vans, coaches, buses.
Formerly known as Tata Eng ...
, was seeking a $1.5 billion loan from the government to cope with the credit crisis.
On 22 December 2008, Tata declared that it would inject "tens of millions" of pounds into the company it had acquired from
Ford Motor Corporation in early 2008. British Prime Minister
Gordon Brown
James Gordon Brown (born 20 February 1951) is a British former politician who served as Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 to 2010. He previously served as Chancellor of the Exchequer in Tony B ...
also stated the intention to help out car industry in U.K.
On 8 January 2009,
Nissan UK announced it was to shed 1200 jobs from its
Washington, Tyne and Wear
Washington is a town in the City of Sunderland district of Tyne and Wear, England. Historically part of County Durham, it is the ancestral settlement of the Washington family, which George Washington descended from.
It is located between Ches ...
factory in
North East England. This announcement was made, despite the plant recently being hailed as the most efficient in Europe.
General Motors UK subsidiary
Vauxhall Motors
Vauxhall Motors LimitedCompany No. 00135767. Incorporated 12 May 1914, name changed from Vauxhall Motors Limited to General Motors UK Limited on 16 April 2008, reverted to Vauxhall Motors Limited on 18 September 2017. () is a British car compa ...
, whose brand is the second most popular in the UK has two bases in the UK, a factory in
Ellesmere Port
Ellesmere Port ( ) is a port town in the Cheshire West and Chester borough in Cheshire, England. Ellesmere Port is on the south eastern edge of the Wirral Peninsula, north of Chester, south of Birkenhead, southwest of Runcorn and south of ...
,
Cheshire and their headquarters and design and development centre in
Luton
Luton () is a town and unitary authority with borough status, in Bedfordshire, England. At the 2011 census, the Luton built-up area subdivision had a population of 211,228 and its built-up area, including the adjacent towns of Dunstable a ...
,
Bedfordshire
Bedfordshire (; abbreviated Beds) is a ceremonial county in the East of England. The county has been administered by three unitary authorities, Borough of Bedford, Central Bedfordshire and Borough of Luton, since Bedfordshire County Council ...
. It is as yet unknown whether these plants will be affected by the GM cutbacks. The group along with their sister subsidiary,
Opel of
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
, was supposed to be sold in their majority to
Magna International
Magna International Inc. is a Canadian parts manufacturer for automakers. It is one of the largest companies in Canada and was recognized on the 2020 ''Forbes'' Global 2000. The company is the largest automobile parts manufacturer in North Americ ...
, an
Austro-
Canadian
Canadians (french: Canadiens) are people identified with the country of Canada. This connection may be residential, legal, historical or cultural. For most Canadians, many (or all) of these connections exist and are collectively the source of ...
company who supply many parts to large car companies, but General Motors cancelled the transaction.
UK bus manufacturer
Optare
Switch Mobility (originally called Optare) is an English bus manufacturer based in Sherburn-in-Elmet, North Yorkshire. It is a subsidiary of Indian company Ashok Leyland. The company would be responsible for the EV operations of the group with ...
received an order from
Arriva
Arriva plc is a British multinational public transport company headquartered in Sunderland, England.[Cross Gates
Cross Gates (often spelled Crossgates) is a suburb in east Leeds, West Yorkshire, England.
The area sits between Seacroft and Swarcliffe to the north, Whitkirk and Colton to the south, Killingbeck to the west and Austhorpe to the south ea ...]
,
Leeds
Leeds () is a city and the administrative centre of the City of Leeds district in West Yorkshire, England. It is built around the River Aire and is in the eastern foothills of the Pennines. It is also the third-largest settlement (by popula ...
,
West Yorkshire
West Yorkshire is a metropolitan and ceremonial county in the Yorkshire and Humber Region of England. It is an inland and upland county having eastward-draining valleys while taking in the moors of the Pennines. West Yorkshire came into exi ...
and the parts centre in
Cumbernauld
Cumbernauld (; gd, Comar nan Allt, meeting of the streams) is a large town in the historic county of Dunbartonshire and council area of North Lanarkshire, Scotland. It is the tenth most-populous locality in Scotland and the most populated t ...
,
North Lanarkshire
North Lanarkshire ( sco, North Lanrikshire; gd, Siorrachd Lannraig a Tuath) is one of 32 council areas of Scotland. It borders the northeast of the City of Glasgow and contains many of Glasgow's suburbs and commuter towns and villages. It als ...
.
UK Van and commercial vehicle manufacturer
LDV Group
LDV Group Limited, formerly Leyland DAF Vans, was a British van manufacturer based in Washwood Heath, Birmingham. Historically part of Rover Group and Leyland DAF, it was later a wholly owned subsidiary of the Russian GAZ Group. Owing to the ...
asked the UK government for a £30 million bridging loan to facilitate a management buyout of the group. On the same day this was refused. LDV has since said it has a viable future and intends to become the first volume producer of electric vans should the management buyout take place. Production at LDV's factory in
Birmingham
Birmingham ( ) is a City status in the United Kingdom, city and metropolitan borough in the metropolitan county of West Midlands (county), West Midlands in England. It is the second-largest city in the United Kingdom with a population of 1. ...
,
West Midlands (where it employed 850 staff) has been suspended since December 2008 due to falling demand. Eventually, no buyout materialised and LDV was declared defunct on 15 October 2009.
Along with several other countries, the UK government launched a ''
scrappage incentive scheme'' in order to support the crisis stricken industry. Cars registered prior to 31 July 1999, later extended to 29 February 2000, were eligible to be scrap in exchange for a discount of £2000 on a new car, half of which was provided by the government and the other half by the dealer. The scheme came to an end on 31 March 2010.
North America
Canada
The Canadian auto industry was closely linked to the U.S., due to the
Automotive Products Trade Agreement and, later, the
North American Free Trade Agreement (NAFTA), and experienced similar difficulties.
United States
The crisis in the United States is mainly defined by the government rescue of both
General Motors and
Chrysler.
Ford
Ford commonly refers to:
* Ford Motor Company, an automobile manufacturer founded by Henry Ford
* Ford (crossing), a shallow crossing on a river
Ford may also refer to:
Ford Motor Company
* Henry Ford, founder of the Ford Motor Company
* Ford F ...
secured a line of credit in case they require a bridging loan in the near future. Car sales declined in the United States, affecting both US based and foreign car manufacturers. The bridging loans led to greater scrutiny of the U.S. automotive industry in addition to criticism of their product range, product quality, high labour wages, job bank programs. The government-backed rescue of the American auto industry gained the support of 37% of Americans in 2009 according to a CNN/Opinion Research Corporation poll, and it gained the support of 56% of Americans in 2012 according to a Pew Research Center poll.
[Reeve, Elspeth (February 23, 2012]
Most Americans Now Think Auto Bailout Was a Good Idea
.''The Atlantic Wire.'' Chrysler was forced into
bankruptcy in April 2009 and GM in May.
While the "
Big Three" U.S. market share declined from 70% in 1998 to 53% in 2008, global volume increased particularly in Asia and Europe. The U.S. auto industry was profitable in every year since 1955, except those years following U.S. recessions and involvement in wars. U.S. auto industry profits suffered from 1971-73 during the
Vietnam War
The Vietnam War (also known by other names) was a conflict in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. It was the second of the Indochina Wars and was officially fought between North Vietnam a ...
, during the recession in the late 1970s which impacted auto industry profits from 1981–83, during and after the Gulf War when industry profits declined from 1991–93, and during the Iraq War from 2001–03 and 2006-09. During these periods the companies incurred much legacy debt.
Facing financial losses, the Big Three have
idled many factories and drastically reduced employment levels. GM
spun off many of its employees in certain divisions into independent companies, including
American Axle in 1994 and
Delphi in 1999. Ford spun off
Visteon in 2000. The spin-offs and other parts makers have shared
Detroit
Detroit ( , ; , ) is the largest city in the U.S. state of Michigan. It is also the largest U.S. city on the United States–Canada border, and the seat of government of Wayne County. The City of Detroit had a population of 639,111 at t ...
's downturns, as have the U.S.-owned plants in Canada. Altogether the parts makers employ 416,000 people in the U.S. and Canada. General Motors alone is estimated to have lost $51 billion in the three years before the start of the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
. GM is set to reacquire factories from its Delphi subsidiary during its Chapter 11 restructuring.
The 2005 Harbour Report estimated that Toyota's lead in benefits cost advantage amounted to $350 US to $500 US per vehicle over North American manufacturers. The
United Auto Workers
The International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America, better known as the United Auto Workers (UAW), is an American labor union that represents workers in the United States (including Puerto Rico) ...
agreed to a two-tier wage in recent 2007 negotiations, something which the
Canadian Auto Workers
The Canadian Auto Workers (CAW; formally the National Automobile, Aerospace, Transportation and General Workers Union of Canada) was one of Canada's largest and highest profile labour unions. In 2013, it merged with the Communications, Energy and ...
has so far refused.
Jared Bernstein
Jared Bernstein (born 1955) is an American economist. He is a senior fellow at the Center on Budget and Policy Priorities. From 2009 to 2011, Bernstein was the chief economist and economic adviser to Vice President Joe Biden in the Obama Admini ...
, the chief economist of Vice President
Joe Biden, noted in an interview with WWJ-AM in Detroit that most of the 2007 contract concessions apply only to new hires, while older workers "still benefit from contracts that were signed a long time ago." However, only 30% of parts used by the Big Three employ union labor, with 70% sourced from non-union labor.
Delphi, which was spun off from GM in 1999, filed for Chapter 11 bankruptcy after the UAW refused to cut their wages and GM is expected to be liable for a $7 billion shortfall.
In order to improve profits, the
Detroit
Detroit ( , ; , ) is the largest city in the U.S. state of Michigan. It is also the largest U.S. city on the United States–Canada border, and the seat of government of Wayne County. The City of Detroit had a population of 639,111 at t ...
automakers made agreements with unions to reduce wages while making pension and health care commitments. GM, for instance, at one time picked up the entire cost of funding health insurance premiums of its employees, their survivors and GM retirees, as the U.S. did not have a universal health care system. With most of these plans chronically underfunded in the late 1990s, the companies have tried to provide retirement packages to older workers, and made agreements with the UAW to transfer pension obligations to an independent trust. Nonetheless, non-unionized Japanese automakers, with their younger American workforces (and far fewer American retirees) will continue to enjoy a cost advantage.
Despite the history of their
marque
A brand is a name, term, design, symbol or any other feature that distinguishes one seller's good or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create an ...
s, many long running cars have been discontinued or relegated to fleet sales,
as
GM,
Ford
Ford commonly refers to:
* Ford Motor Company, an automobile manufacturer founded by Henry Ford
* Ford (crossing), a shallow crossing on a river
Ford may also refer to:
Ford Motor Company
* Henry Ford, founder of the Ford Motor Company
* Ford F ...
and
DaimlerChrysler
The Mercedes-Benz Group AG (previously named Daimler-Benz, DaimlerChrysler and Daimler) is a German multinational automotive corporation headquartered in Stuttgart, Baden-Württemberg, Germany. It is one of the world's leading car manufacture ...
shifted away resources from midsize and compact cars to lead the "SUV Craze". Since the late 1990s, over half of their profits have come from
light trucks and SUVs, while they often could not break even on compact cars unless the buyer chose options. Ron Harbour, in releasing the Oliver Wyman’s 2008 Harbour Report, stated that many small “
econobox Econobox is a United States informal slang term for a small, boxy, fuel-efficient economy car with few luxuries and a low price.
History
Econoboxes first came to prominence in the United States due to the 1973 oil crisis. Japanese automakers we ...
es” of the past acted as loss leaders, but were designed to bring customers to the brand in the hopes they would stay loyal and move up to more profitable models. The report estimated that an automaker needed to sell ten small cars to make the same profit as one big vehicle, and that they had to produce small and mid-size cars profitably to succeed, something that the Detroit three have not yet done. SUV sales peaked in 1999 but have not returned to that level ever since, due to higher gas prices.
In the case of
Chrysler Corporation, compact and mid-sized vehicles such as the
Dodge Neon
Dodge is an American brand of automobiles and a division of Stellantis, based in Auburn Hills, Michigan. Dodge vehicles have historically included performance cars, and for much of its existence Dodge was Chrysler's mid-priced brand above Ply ...
,
Dodge Stratus
The Dodge Stratus is a mid-size car that was introduced by Dodge in December 1994 and was based on the 4-door sedan Chrysler JA platform. The Stratus, Plymouth Breeze, and Chrysler Cirrus were all on ''Car and Driver'' magazine's Ten Best li ...
and
Chrysler Cirrus
The Chrysler Cirrus is a mid-sized 4-door notchback sedan introduced by Chrysler motors for the 1995 model year. Built on the Chrysler JA platform, the 4-door notchback sedan joined Chrysler's roster of "Cloud Car" models drawing their names f ...
were produced profitably during the 1990s concurrently with more profitable larger vehicles. However, following the
DaimlerChrysler
The Mercedes-Benz Group AG (previously named Daimler-Benz, DaimlerChrysler and Daimler) is a German multinational automotive corporation headquartered in Stuttgart, Baden-Württemberg, Germany. It is one of the world's leading car manufacture ...
merger in 1998, there was a major cost-cutting operation at the company. The result was the lowering of benchmarked standards for Chrysler to aim at. This directly led to the following in Chrysler's case. There was realignment of the Chrysler Group model range with those of GM and Ford (i.e. a skew towards larger vehicles).
The Detroit Big Three had been slower to bring new vehicles to the market compared with foreign competitors. The Big Three have battled initial quality perceptions in spite of reports showing improvements.
Falling sales resulted in the Big Three's plants operating below capacity. GM's plants were operating at 85% in November 2005, well below the plants of its Asian competitors, and was only maintained by relying on cash incentives and subsidized leases. Rebates, employee pricing, and 0% financing boosted sales but drained the automaker's cash reserves. The
subprime mortgage crisis and high oil prices of 2008 caused the popularity of once best-selling trucks and SUVs to plummet. Automakers were forced to continue offering heavy incentives to help clear excess inventory. Due to the declining residual value of their vehicles, Chrysler and GM stopped offering leases on most of their vehicles in 2008.
In September 2008, the
Big Three asked for $50 billion to pay for health care expenses and avoid bankruptcy and ensuing layoffs, and Congress worked out a $25 billion loan. By December, President Bush had agreed to an emergency bailout of $17.4 billion to be distributed by the next administration in January and February. In early 2009, the prospect of avoiding bankruptcy by General Motors and Chrysler continued to wane as new financial information about the scale of the 2008 losses came in. Ultimately, poor management and business practices forced Chrysler and General Motors into bankruptcy. Chrysler filed for chapter 11 bankruptcy protection on May 1, 2009 followed by General Motors a month later.
On June 2, General Motors announced the sale of the
Hummer
Hummer (stylized as HUMMER) is a brand of pickups and SUVs that was first marketed in 1992 when AM General began selling a civilian version of the M998 Humvee. Although discontinued in 2010, Hummer returned as a sub-brand of GMC in 2020. ...
brand of
off-road vehicles
An off-road vehicle, sometimes referred to as an overland or adventure vehicle, is considered to be any type of vehicle which is capable of driving on and off paved or gravel surface. It is generally characterized by having large tires with dee ...
to
Sichuan Tengzhong Heavy Industrial Machinery Company Ltd
Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd. is based in Chengdu, China. Sichuan Tengzhong is a privately owned company known for making a wide range of road equipment, such as bridge piers, highway construction and Maintenance, repair a ...
., a machinery company in western China, a deal which later fell through. Later, GM announced that it was ending production of its Hummer, Saturn and Pontiac lines effective at the end of the 2009 model year.
Effects of environmental expectations and changing product demand
Environmental politics and related concerns regarding carbon emissions have heightened sensitivity to gas mileage standards and environmental protection worldwide. In a 2007 edition of his book ''
An Inconvenient Truth
''An Inconvenient Truth'' is a 2006 American documentary film directed by Davis Guggenheim about former United States Vice President Al Gore's campaign to educate people about global warming. The film features a slide show that, by Gore's own e ...
'',
Al Gore
Albert Arnold Gore Jr. (born March 31, 1948) is an American politician, businessman, and environmentalist who served as the 45th vice president of the United States from 1993 to 2001 under President Bill Clinton. Gore was the Democratic no ...
criticized the Big Three. "They keep trying to sell large, inefficient gas-guzzlers even though fewer and fewer people are buying them." For example, Japan requires autos to achieve of gasoline and China requires . The
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
requires by 2012. By comparison, U.S. autos are required to achieve only presently. Other nations have adopted standards that are increasing mpg requirements in the future. When
California
California is a state in the Western United States, located along the Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the most populous U.S. state and the 3rd largest by area. It is also the m ...
raised its own standards, the auto companies sued.
The Big Three received funding for a $25 billion government loan during October 2008 to help them re-tool their factories to meet new fuel-efficiency standards of at least by 2020. The $25 billion in loans from the Department of Energy to the auto manufacturers were actually authorized by Congress early this year but not funded. Automakers could use these loans to "equip or establish facilities to produce ‘advanced technology vehicles’ that would meet certain emissions and fuel economy standards; component suppliers could borrow funds to retool or build facilities to produce parts for such vehicles."
Effect of 2008 oil price shock and economic crisis
In 2008, a series of damaging blows drove the Big Three to the verge of bankruptcy. The Big Three had in recent years manufactured
SUV
A sport utility vehicle (SUV) is a car classification that combines elements of road-going passenger cars with features from off-road vehicles, such as raised ground clearance and four-wheel drive.
There is no commonly agreed-upon definiti ...
s and large
pickups, which were much more profitable than smaller, fuel-efficient cars. Manufacturers made 15% to 20% profit margin on an SUV, compared to 3% or less on a car. When gasoline prices rose above $4 per gallon in 2008, Americans stopped buying the big vehicles and Big Three sales and profitability plummeted.
The
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
played a role, as GM was unable to obtain credit to buy Chrysler. Sales fell further as
consumer credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt ...
tightened and it became much harder for people with average or poor credit to obtain a bank loan to buy a car. During 2007, nearly 2 million new U.S. cars were purchased with funds from home equity loans. Such funding was considerably less available in 2008. In addition, stock prices fell as shareholders worried about bankruptcy; GM's shares fell below 1946 levels. Furthermore, the instability of the job market and individual consumers' finances discourages consumers who already have a working vehicle from taking on a new loan and payments, which affected almost all major manufacturers.
The annual capacity of the industry is 17 million cars; sales in 2008 dropped to an annual rate of only 10 million vehicles made in the U.S. and Canada. All the automakers and their vast supplier network account for 2.3% of the U.S. economic output, down from 3.1% in 2006 and as much as 5% in the 1990s. Some 20% of the entire national manufacturing sector is still tied to the automobile industry. The transplants can make a profit when sales are at least 12 million; the Big Three when sales are at least 15 million.
By December 19, 2008, oil prices had fallen to $33.87 per barrel, but the automobile crisis continued.
Ecuador’s Correa Says He’ll Maintain U.S. Dollar
, Bloomberg, December 20, 2008.
See also
* Corporate welfare
Corporate welfare is a phrase used to describe a government's bestowal of money grants, tax breaks, or other special favorable treatment for corporations.
The definition of corporate welfare is sometimes restricted to direct government subsidie ...
* Lemon socialism
* Presidential Task Force on the Auto Industry
* Too big to fail
"Too big to fail" (TBTF) and "too big to jail" is a theory in banking and finance that asserts that certain corporations, particularly financial institutions, are so large and so interconnected that their failure would be disastrous to the great ...
* Effects of the 2008–10 automotive industry crisis on the United States
* Effects of the 2008–10 automotive industry crisis on Canada
References
External links
CAR industry news
Auto Industry Financing and Restructuring Act
Capitalism and the auto crisis
Toyota losses highlight global auto collapse
GM closes plants in Wisconsin and Ohio
Crisis grips German auto industry
Thousands of jobs threatened in Swedish auto industry
European auto industry in crisis
*February 2009 Restructuring Plans
{{DEFAULTSORT:Automotive Industry Crisis Of 2008-2009
2008 in economics
2009 in economics
2010 in economics
Automotive industry
History of the automobile
Financial crises
Great Recession