Influence of 2007 Economic Crisis on American Car Market essay

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2007 Economic Crisis on American Car market

Effect of the 2008 global economic crisis on automotive industries

Crisis in the United States

Crisis in Canada

Crisis in Russia

Crisis in European markets

Crisis in Asian markets

Effects by other related crisis events

In this paper, we will review the effects of 2008 global automotive crisis. Our main focus will be on the American car manufacturers and the negative impact they suffered due to the crisis. We will also have a look at how this crisis had affected car manufacturers in other major markets around the world notably Europe, Canada and the prominent Asian markets such as China and India. Finally, we will look at some of the other factors which were important to this event namely the energy crisis since the cost of fuel is directly related to the car industry.

Introduction

The automobile industry is a very important part of the global economic structure, in many of the developed nations of Northern America and Europe it comprises of a very significant part in the economy as well as employing a huge number of workforce. Globally the automobile industry produces more than eight hundred million cars, here more than two hundred and fifty million vehicles are being produced in the United States only. Therefore if any crisis occurs to the auto manufacturers in U.S. then it is bound to create a global problem for the rest of the auto industries.

The main cause of the problem was in fact the mismanagement from the top American firms, the instigator to this was the 2008 financial crisis which was then held responsible for the automobile crisis. Since the financial crisis affected mostly the employees of any firm therefore here the employees were again the target of mass cuts in wages, pensions and jobs from the firms which were getting short of capital for their survival.

Therefore in this paper there are many facts as well as examples which have properly highlighted the impact of this crisis at the global level. Although the main focus is given on the U.S. market, there were many other important events related to other major regions which are highlighted as well. The purpose of presenting these facts is to give the reader a thorough and detailed analysis as to where the fault originally lies and what were the reactions from the institutions as well as the governments. Besides this, other related sectors which have a key role in the automobile industry are also put on focus such as the energy sector and any relative changes here are also discussed in detail since it greatly affects this industry.

I a). Literature review

It is very important to study the automotive crisis in order to avoid any such event in the future as it tends to be extremely disastrous for global economies. By doing a thorough and detailed analysis of the problem we may be able to find out the root causes of the problem which in many cases are more hidden as compared to the obvious reasons present in front of everyone.

For any analyst associated with the auto industry the study of this crisis is extremely important in order to improve its analysis as well as helping others which might be seriously affected because of this event. What we already know is that the management of the firms had a huge role in this crisis but in this paper we will analyze what made the managements behave in that manner. There have been many methods applied by many analysts to have a better idea of the crisis or even to solve it, most of this involves assessing the history of the firms and their financials therefore we will also take note of these methods.

Previous researches in this subject have given a brief picture regarding the crisis, here we have seen many different commentators giving their view regarding a certain firm and its gains and losses. Also we have seen that different researches done in the past have focused specifically on a single nation and the affect suffered on its market therefore the framework for this study will be covering a broader perspective relative to all the sides involved in the crisis. We will try to merge all of the work done by many previous writers, commentators and analysts in this field so that our work gives the reader a much broader idea on the event and its causes as well as effects.

I. b) Research purpose

The format and the narrations of this paper will be made simple so that any professional analyst as well as a student would be able to understand the details and the causes of the event and also that the reader may find ease in formulating its own opinion which is completely in accordance with the facts and figures since many of the information available elsewhere can be confusing or show a vivid picture of this whole scenario.

Some research questions which can help in clarifying the matters related to the topic includes the defining of roles and responsibilities of parties which later on went to give recommendations regarding the solution of this crisis such as the federal governments of United States and other European and Asian nations. Another key question is relative to the effect of oil prices and the roles of energy firms in this event since it was widely considered that the main cause of exaggeration of the automobile crisis was the improper practice by the energy firms, this will also be put on spotlight.

On analyzing many such questions in this study, it has come to our terms that this crisis event could have been easily avoided if the involved parties were more responsible in their duties such as focusing more towards serving the customer through better technology and quality as compared to making profits. The auto firms also over stretched themselves in terms of things such as maintaining their level of debt. The response of the American firms towards the crisis in the starting phase was observed to be extremely dull and inappropriate which created more problems for everyone.

II. Crisis in the United States

II a). General Analysis

In the year 2008, a global recession struck which greatly affected the United States economy. This recession had great negative impacts on many sectors of the American economy in which one of the prominent was the automobile industry, even before the recession there were many events such as declining automobile sales and the less amount of credit present in the business which went on to create a more disastrous and widespread automotive industry crisis.

In the later half of 2008, great drops of automobile sales were recorded by every car manufacturing firm in the U.S., here the "Big Three" manufacturers namely Ford, General Motors and Chrysler requested for emergency loans which were required to solve their cash shortage problems. However, the problems being faced by these firms were not only related to just capital and soon the situations of these manufacturers got worse as Chrysler and General Motors went on the verge of bankruptcy.

The U.S. government intervened in this matter since it threatened massive job losses as well as posed huge damage to the overall manufacturing sector, therefore the government provided a financial bailout in order to support the companies in restructuring. Both the GM and Chrysler filed separately for Chapter 11 bankruptcy protection.

Later on General Motors emerged as a new firm from the bankruptcy, it was now owned majority by the treasury of the United States government. Chrysler was now owned by the union of United Auto Workers as well as Fiat S.p, A. After their emergence they also terminated many of their agreements with their dealerships, General Motors also had to discontinue many of its brands due to its bankruptcy proceedings.

In all of the big three firms, Ford survived without entering into bankruptcy mainly because of a huge line of credit that it got in 2007. This automobile crisis was a global phenomenon but the car manufacturers in United States were more affected by this crisis as compared to any of the other foreign manufacturers.

Currently all of the major American manufacturers have went on to increase their sales as part of their ongoing strategies, this has resulted in some success as they have recently posted profits regarding their sales figures. As of 2012, the whole of automobile industry had succeeded in its recovery efforts up to great extent, here General Motors posted sales of more than nine million vehicles which is greater as compared to the sales of Toyota.

According to many analysts, the automobile crisis in the United States was deemed so worse mainly because of improper business practices by the big firms there namely the three that have been mentioned, when comparing the big American firms with other global giants especially those which originates in Asia then it was seen that the Asian firms were not facing…[continue]

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