2008 saw record-high gas prices, an economic and financial crisis, tightening credit, and dwindling consumer confidence. As a result, the U.S. market for cars and light trucks declined 18 percent to 13.2 million vehicles in 2008, the lowest sales level since 1992. Every vehicle segment and automaker, other than Subaru, experienced a sales decline. The severe sales reduction particularly affected the Detroit 3 (GM, Ford and Chrysler), resulting in employment and benefit reductions, plant and dealership closures, supplier bankruptcies, asset sales, product changes, and near-bankruptcy for GM and Chrysler. U.S. light vehicle manufacturing employment alone has declined by 37,700 employees since 2006.
For the first time since 2000, more cars were sold in the United States than light trucks. Sales of passenger cars fell 10.6 percent to 6.8 million vehicles, while sales of light trucks dropped to 6.4 million vehicles, a decline of 24.7 percent. Analysts are not optimistic vehicle sales will increase in 2009, nor do they expect annual U.S. sales levels to rebound to 16 million units for at least a couple of years.
The Detroit 3’s combined market share was 47.4 percent in 2008, falling below 50 percent for the very first time. GM and Chrysler, on the verge of bankruptcy, received U.S. government loans, with conditions, in late 2008 and early 2009 totaling $17.4 billion (as of March 2009). Additional money was requested in February 2009 due to declining economic conditions. Ford has not asked for direct funding, but has stated it may need a $9 billion line of credit. After assessing GM and Chrysler’s restructuring plans submitted on February 17, 2009, the Obama Administration determined at the end of March 2009 that the plans were not viable and called for more aggressive restructuring plans for the automakers.
Foreign competitors were not spared from the U.S. market downturn in 2008. Japanese brands, with a 39.7 percent U.S. market share, experienced a 12.2 percent sales decline. German automakers had a 6.8 percent market share, but sales fell 6.1 percent. The Korean manufacturers’ market share grew to 5.1 percent, but sales declined 12.6 percent. U.S. light vehicle manufacturing capacity declined again in 2007 (latest figure available) for the fourth year in a row. Capacity is likely to continue to decrease since new investments from foreign-affiliated firms will only partially offset the Detroit 3’s planned plant closures.
The downturn in the U.S. auto market in 2008 was not isolated, as other global markets also experienced a downturn. This global decline meant the Detroit 3 could not depend on other markets to boost their profits. Emerging markets such as Russia, India, and China, are expected to experience increasing income levels and growing vehicle ownership rates in the near future, and have already received high levels of investments by global automakers. However, 2008’s global recession resulted in a relatively slow growth year for these markets as well.
The U.S. light vehicle trade deficit remained the highest in the world; however, a 7 percent increase in exports and 9.9 percent decrease in imports led to an 18.7 percent decrease in the light vehicle trade deficit, totaling almost $79 billion. U.S. light vehicle exports have increased for seven straight years, with most continuing to go to Canada. In 2008, Japan replaced Canada as the largest source of light vehicle imports. Japanese imports fell 4.8 percent, imports from Canada decreased 23.7 percent, imports from Mexico fell 3.5 percent, and imports from Germany grew 4.3 percent.
With such low consumer confidence, rising unemployment, and ongoing difficulties in the credit, financial and housing markets, analysts are forecasting U.S. vehicle sales and overall production volumes in 2009 to be even lower than in 2008. The Detroit 3 continue to restructure, with GM and Chrysler working with the U.S. government on turnaround plans to satisfy the terms of their loan agreements.
Stricter fuel economy regulations, lessening our dependence on oil, and an emphasis on reducing emissions are all placing greater pressure on automakers to bring advanced technologies to the U.S. market, as well as other markets worldwide. Complying with new regulations will require billions of dollars in investments by the automakers and may require new infrastructure as well.
These demands are coming at a time when automakers are facing severe financial problems and many consumers cannot afford to pay a premium for the new technologies. The timing could also give international automakers, such as Toyota and Honda, an advantage because they are more financially sound to make R&D investments, and are perceived by many consumers as having the lead in providing fuel efficient models. Prioritizing and managing investments in the variety of technologies (i.e., biofuel engines, hybrids, plug-ins, hydrogen fuel cells, and advanced diesel engines) continues to be a challenge and gamble for all automakers. Worldwide competition is growing and it is unclear which technologies will be commercially viable.