Friday, December 5, 2008

Revitalizing the US automotive industry

The Big Three US automakers -- General Motors, Ford Motor and Chrysler LLC submitted their turnaround plans to Congress in an effort to seek approval of up to $34 billion in federal loans for the US auto industry they claim are necessary for their survival.
The poor sales caused The Big Three seeking the government bailout. General Motors, the nation's largest automaker, is asking for up to $18B, Ford wants $9B and Chrysler, $7B.

It is reported that Chrysler Chief Executive Robert Nardelli committed to working for $1 per year, GM's Rick Wagoner and Ford boss Alan Mulally both pledged Tuesday to work for one dollar a year in salary if their companies got tax-payer help.

Motor vehicles are one of the most important consumer products in terms of total household expenditures. As the largest durable consumer product in terms of expenses next to housing, the consumers demand for motor vehicles is highly correlated with the general business cycle as the automotive industry generates economic activity through backward and forward linkages.

The main competitors in the global market are Japan, South Korea and Chinese producers. Nonetheless, the efficiency of Japanese automaker Toyota has been higher and very well equipped for price competition.

The automotive industry is one of US’s key industrial sectors, whose importance is largely derived from its linkages within the domestic and international economy and its complex value chain but the international producers are well positioned to compete.

The job cuts, shuttered factories, canceled bonuses and commitments to fuel-efficient cars are not the answers to the problems.

The internationalization strategies may change over the current slump in US automotive market is to increase global competitiveness and address the challenge of mass motorization in low income, emerging economies.

The existence and the continued growth of overseas markets are encouraged. The Chinese automotive market is growing very rapidly and China will be the third largest market for automobiles by the end of the decade, thus by expending export to the emerging China, Asian and Eastern European markets relying on price and quality of cars by far one of the effective strategies to improve their financial condition.

Practically, to tide over the turbulent times, revitalizing the industry and avoid the tough international competition, the major changes to the way of doing business to achieve long-term viability is to introduce cheap but powerful hybrid electric or water vehicles.

1 comment:

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