2008 Global Automotive Crisis: Causes, Effects & Recovery

Introduction

The automobile industry is a very important part of the global economic structure. In many developed nations of North America and Europe, it comprises a significant share of the economy and employs a huge workforce. Globally, the automobile industry produces more than eight hundred million cars, with more than two hundred and fifty million vehicles produced in the United States alone. Therefore, any crisis affecting auto manufacturers in the U.S. is bound to create global problems for the rest of the industry.

The main cause of the crisis was, in fact, mismanagement by the top American firms. The instigator was the 2008 financial crisis, which was then held responsible for triggering the automobile crisis. Since the financial crisis affected employees of firms most directly, workers again became the target of mass cuts in wages, pensions, and jobs as companies ran short of capital for survival.

This paper presents many facts and examples that highlight the impact of this crisis at the global level. Although the main focus is on the U.S. market, many other important events related to major regions are highlighted as well. The purpose is to give the reader a thorough and detailed analysis of where the fault originally lies and what the reactions were from institutions and governments. Other related sectors with a key role in the automobile industry — particularly the energy sector — are also discussed in detail, since changes in energy costs greatly affect this industry.

Literature Review

Studying the automotive crisis is very important in order to avoid any such event in the future, as it tends to be extremely disastrous for global economies. Through thorough and detailed analysis of the problem, we may be able to find out the root causes, which in many cases are more hidden than the obvious reasons visible to everyone.

For any analyst associated with the auto industry, studying this crisis is extremely important in order to improve analysis and help those seriously affected by the event. What we already know is that firm management had a huge role in this crisis; this paper will analyze what caused management to behave in that manner. Many methods have been applied by analysts to better understand the crisis or even solve it, most of which involve assessing the history of the firms and their financials — and those methods will be taken into account here.

Previous research on this subject has provided a brief picture of the crisis, with many commentators giving their view regarding a particular firm and its gains and losses. Different prior studies have typically focused on a single nation and the effects suffered by its market. The framework for this study, by contrast, covers a broader perspective relative to all sides involved in the crisis. The work of many previous writers, commentators, and analysts in this field is synthesized here so that the reader gains a much broader understanding of the event, its causes, and its effects.

Research Purpose

The format and narrative of this paper are kept straightforward so that both professional analysts and students can understand the details and causes of the event, and so that the reader may find it easier to formulate an informed opinion in accordance with the facts and figures — since much of the information available elsewhere can be confusing or present an unclear picture of the overall scenario.

Some research questions that help clarify matters related to the topic include defining the roles and responsibilities of parties that later made recommendations regarding the solution to this crisis, such as the federal governments of the United States and other European and Asian nations. Another key question concerns the effect of oil prices and the role of energy firms in this event, since it was widely considered that the main cause of the crisis being exaggerated was improper practices by energy firms.

On analyzing many such questions in this study, it becomes clear that this crisis could have been avoided had the involved parties been more responsible — for example, by focusing more on serving the customer through better technology and quality rather than solely on profits. Auto firms also over-extended themselves in maintaining their level of debt. The response of American firms in the early phase of the crisis was observed to be extremely slow and inappropriate, which created more problems for everyone.

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