The Automotive industry today faces a decline in profits due to the global economic crisis. Not only has this affected profits but also a lack of vehicular sales, loss of jobs and closure of various dealerships nationwide. Manufactures all are thinking of new techniques to deal with this crisis; General Motors (GM) and Daimler Chrysler have received large sums of bailout money. Toyota has been changed, promoting hybrids and more fuel efficient vehicles in efforts to revive the now declining Industry. The questions that we are now faced with what are:
What is the crisis and what caused it?
What options do manufactures have?
What will make the crisis ok?
What will the future look like?
General Motors GM
General Motors has announced that they will be selling their well known “Saturn” brand to Penske (owned by former race car driver Roger Penske), but because Penske withdrew their bid, the brand will be phased out by October 2010. Along with this, GM is planning to discontinue two of its other top brands (Hummer and Pontiac).
Being the top U.S automobile manufacturer up until 2008, one would ask why this big force is getting rid of three of its main brands. Hummer will meet its demise because of the fact that demand for large SUV’s are greatly decreasing. With a poor nine (9) miles per gallon for majority of its vehicles, this brand can hardly compete with the more fuel efficient vehicles on the market.
On the other hand, Saturn and Pontiac are both being phased out because of financial reasons. A chapter 11 bankruptcy was filed for GM, but on July 10, 2009, they reorganized the company. It is said that GM is 75% owned by the United States Treasury and Canadian governments.
Toyota has made a press release informing stakeholders of the first-ever annual operating loss it has had in a century. This loss was caused by the harsh decrease in sales along with the rise in the Japanese currency.
In January of 2009, Toyota was forced to close (11) eleven of its production plants in Japan. This decision was in effect up until the month of March because of the lack of demand for vehicles which left dealers with unsold vehicles and a high overhead cost. The president of Toyota, Katsuaki Watanabe complained about the unpredictable 2009 market in press releases stating, “I never expected the crisis to spread this fast and leave this deep a scar” (qtd in Toyota Stop Production ¶ 4). Toyota did not make a press release stating they will be filing for bankruptcy or doing mass layoffs like US companies such as General Motors but it is definitely their end fiscal years.
How is Toyota dealing with this crisis?
Toyota has pledged not to lay off workers and has found ways to implement pay cuts without violating this pledge; they are also offering a voluntary buyout program to various dealerships nationwide. The management of the company also took at hit with the crisis; they will not be pulling in the large bonuses the end of this year as some has been cut by 50%.
Toyota has no solution for getting consumers to buy more cars, as the richest customers have zipped their wallet due to worries of losing their jobs.
On the bright site Toyota is now aware of the current situations and is on the way to put the company in a better situation.
What is the Crisis and what caused it?
Many Automotive dealerships have not only closed down but filed for bankruptcy. It’s the belief that this action is not because of the lack of internal control or marketing but because of the economical recession. The Automotive industry has taken a big hit causing Manufacturers to close factories worldwide.
This all started when the automotive industry was weakened by the rise in oil prices in 2008 which carried the prices of vehicles sky high. With this substantial increase in prices the main US manufacturers such as Ford, GM and even Chrysler started to lose sales to their Japanese competition; Toyota Motor Company, Honda and Mitsubishi which were offering greater discounts and deals and also produced cheaper more fuel efficient cars.
Manufactures have openly admitted that they have made many mistakes over the years. They have emphasized too much on making trucks and SUVs and the failure make a proper reaction to the new demand for fuel efficient vehicles.
In addition to the increase in production, the percentage of imported parts went up as well. Because the U.S. no longer builds their cars locally, they have to pay for the cost of the part itself and then transportation of the said parts to their locations. This also is a major problem for the industry.
What options do manufactures have?
One solution to solve the automotive crisis is creating “The Committee of Automotive Control”. This committee will be created by Congress, and consist of nine members. This will be an administrative team to control policies and prices of automotive manufactures. Each member will go through a rigorous selection process that to ensure there is no conflict of interest, they are qualified for the job and to make sure they are knowledgeable about the industry. This committee should include economist, qualified bankers and persons with extensive automotive history. The committee must first analyze the industry using a structured decision making process.
This committee will have the duties of:
- Analyzing, appraising and evaluating of the automotive industries.
- Examining the conditions and circumstances that may indicate that policies need to be added or changed.
- Price control of Vehicles.
- Setting a ceiling to prevent greedy car dealers from raising prices to a unreasonable unaffordable price.
- Setting an average price for the different categories e.g. Sedans, coupes, SUV, trucks.
Green is not only the color of money but it a thought in consumers mind when buying a car. Manufactures are starting to show off a new generation of vehicles that are fueled by electricity or hybrid power. Fuel efficiency is still the priority of drivers on the road today.
While manufacturers are racing to perfect and develop green cars all are being sold for over $100,000.00. Developing green cars is quite time consuming and costly as the technology used to build them continues to progress.
On the other hand this idea is in good standing with the government as it reduces the dependency on oil. Experts predict that as technology advances and the demand for these cars grow the price to manufacture them will drop to a more affordable price.
Let us face it, without the proper components a safe car cannot be produced successfully. The only problem with this is when the majority of your components are manufactured and shipped from other countries. With the current system set up, the American industry does not only need to purchase the part, but they have to pay shipping and freight costs as well.
There was once a time when American vehicles and parts were manufactured mainly in the United States. The proposal is to build more plants and factories in the U.S so that the country can go back to that era. Saving money spent on importing parts will not be the only up side, but this will create more job opportunities within the nation and more job opportunities give the economy a chance to build up (more funds circulating within the country).
Wants and Needs Analysis
|Needs||Solution no. 1||Solution no. 2||Solution no. 3|
|Decrease Production Cost||No||No||Yes|
|General Price control of Vehicles||Yes||No||No|
|Opening New Dealerships||6||6||36||6||36|
|More fuel efficient cars||7||8||56||8||56|
|All Parts Manufactured in the US||9||8||72||8||72|
|Joint Dealership Ventures||4||5||20||5||20|
The crisis is in immediate need of fixing; it has indirectly affected revenue in the US and directly affects jobs in each state. If the industry does not pick up from the current slump that it is in the US economy will be in a downward spiral.
In today’s world, persons are still purchasing expensive gas guzzling vehicles that even for the simplest engine problem a specialist needs to be called in. Most persons always prefer luxury over fuel efficiency for their first, second, or even third vehicle. Unfortunately, there are a lot of persons who cannot even afford a used car at the back of the lot, much less the high-priced sports car on the front line.
It is a unanimous decision between the members of our group that if the automotive industry continues on the way that it is going then three things will happen. First, the automotive companies win incur a lot more expenses in terms of the rising cost for materials. As a result they will need to lay off workers to keep a proper profit/loss balance. Finally, because of the minimized working force the product quality will decrease and as such dealerships will have to close because of a lack of sales (buyers do not want a defective product).
As a group we decided that no one solution would solve the problem. We have combined Solution #1 with Solution #3 as they fit the criteria of our wants and needs analysis. This new solution has been called the “Hybrid”.
Our solution has been put to congress and they have agreed to run with this idea. They are now in the progress of finding individuals to control and fit the positions on the committee. Offices has been open nationwide to house the new employees working for the committee; the head office is based in the home of the “big three” Detroit. This office will be the headquarters where the 9-10 officials are located and all decisions and bills regarding the automotive industry are passed. Congress will be bi-annually receiving progress reports from the headquarters to ensure that they are making a brighter future for manufactures and consumers alike.
Combined with this, we shall create a fund to build more manufacturing plants. With new plants in place, more persons can be employed, thus creating more opportunities for persons to increase their income. With this part of the solution, companies will be drastically reducing their total expenditures because no longer will they have to foot the bill for importing parts or even cars to complete their production lot.
|Possible problem||Possible Cause||Possible Effect||Plan A(Preventive action)||Plan B(contingent plan)|
|Low Quality Parts||The lack of available funds can cause the company to resort to cheap materials||1. Poor Quality cars.
2. Decreased safety standards
|1. Produce parts in the US.
2. Set a standard for part Quality.
|1. Make use of partnerships. 2. Have a joint deal with suppliers.|
|Lack of sales||1. Customers have no money.
2. Cars may be too expensive. 3. Cars are not tailored to customer needs.
|1. Closing of dealerships. 2. Loss of profit||1. Lower the price of cars by producing parts in the US. 2. Make fuel efficient cars.
3. Create jobs by opening production plants.
|1. Sell cars at discounted price|
After reviewing the problems at hand and the solutions implemented, it is agreed that the problem was not totally solved. The committee with their price controlling and unification rules will enable the average person to be able to purchase a car, thus increasing sales, there will still be the problem of assuring that banks will give certain individuals loans to purchase cars.
The other half of the solution will do a lot for the different U.S based manufacturers. As stated previously, if implemented, this solution could bring more profit to the table of the dealers. This would be so if the economy strengthened and persons could be able to purchase cars more frequently. Unfortunately, this solution has no control over sales but it does allow for more persons to be employed and for the manufacturers to save money on the various parts needed to build each vehicle.
Billitteri, Thomas J. “Auto Industry’s Future.” CQ Researcher 19.5 (2009): 105-128. CQ Researcher. Web. 18 Oct. 2009. <http://library.cqpress.com/cqresearcher/cqresrre2009020600>.
Warbuck, Rich. “.Halloween Treat: Toyota Motors.” (2005): n. pag. Web. 18 Oct 2009. <http://www.fool.com/investing/general/2005/10/27/halloween-treat-toyota-motors.aspx>.
McIntyre, Douglas. “As Auto Recession Deepens, Toyota (TM) Cries “Uncle.” 2009. Web. <http://247wallst.com/2009/02/12/as-auto-recession-deepens-toyota-tm-cries-uncle/>.
“General Motors.” Wikipedia, The Free Encyclopedia. 18 Oct 2009, 00:38 UTC. 19 Oct 2009 <http://en.wikipedia.org/w/index.php?title=General_Motors&oldid=320507872>.
 A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.