THE CAR INDUSTRY
In the U.S., the 2007 market was approximately 15.9 million cars and light trucks sold, down from about 16.5 million the previous year. Production in North America, during 2006, including cars and trucks of all types, totaled 11.8 million produced in America, 2.6 million produced in Canada and 2 million produced in Mexico. Globally, about 53 million new cars were sold in 2007, up from about 49 million the previous year. These estimates are from Scotiabank Group.
There are approximately 244 million vehicles in operation in the United States. Around the world, there were about 806 million cars and light trucks on the road in 2007. By 2020, that number will reach 1 billion. Currently, those vehicles burn nearly 260 billion gallons of fuel yearly.
In the U.S., as of 2006, the industry included about 21,200 new-car dealerships, 1.07 million manufacturing employees and 1.12 million retail new and used car dealership employees. Total revenues at new-car and light truck dealers exceed $675 billion, according to NADA.
The years of 2004 through 2006 will long be remembered as a pivotal period in the automobile industry. It was a period during which high gasoline prices started a sea change among U.S. consumers that is finally creating significant demand for fuel-efficient vehicles. Gasoline prices of approximately $2.00 per gallon started taking a huge bite out of family budgets in 2004, and many middle-class consumers who owned fuel guzzling SUVs and pickup trucks began to wish they had vehicles that were much less expensive to operate. By 2005-2006, with gasoline prices in the $3.00 range, the party was over for traditional, large SUVs. While gasoline prices moderated during much of 2007, they were still in the $2.70 range in most markets.
One result was the phenomenal demand for Toyota's Prius hybrid car. Toyota responded by raising the price and planning production increases. Meanwhile, Toyota made investments in its Georgetown, Kentucky plant to enable it to manufacture 48,000 hybrid Camrys yearly there by late 2006—Toyota will likely wish it had created even more hybrid capacity. Meanwhile, there has been good demand for Toyota's Lexus RX400h hybrid crossover. Ford launched its first hybrids, and other carmakers, including GM, were greatly encouraged in their own efforts to bring more hybrids to the market. However, response to hybrids from U.S. makers has been lukewarm at best. Consumers generally aren't as impressed with U.S. hybrid technology as they are with that of Toyota models, and actual mileage results on the road have been disappointing, largely due to driver habits such as quick acceleration which uses more fuel. Over the mid-term, many hybrids will be available from a wide variety of makers, and technology will steadily improve.
Other fuel-efficient vehicles, such as BMW's MINI Cooper, have enjoyed soaring demand. Consumers and emissions regulators started to take a renewed interest in advanced-technology. Clean diesel engines, like those offered in new cars from Volkswagen and Mercedes-Benz, offer exceptional performance and fuel economy while providing the quiet, vibration-free running associated with gasoline engines. Clean diesel offers a particularly attractive alternative over hybrid technology in the U.S. market, and is already widely used in passenger vehicles in Europe. In addition to clean diesel, the use of ethanol as a gasoline additive will grow rapidly in the U.S., thanks to encouragement by Congress.
Meanwhile, sales of heavy SUVs lagged miserably, and automakers such as Chevy, Hummer and Cadillac offered large dealer incentives and rebates in an effort to move these vehicles. Ford cancelled production of its larger-than-life Excursion SUV in which some owners reported getting as little as 11 MPG in the city, and GM cancelled production of the massive Hummer H1.
Car consumers outside the U.S. made history as well. The rising affluence of consumers in China created both huge opportunities and huge problems. China has become one of the world's largest importers of petroleum products, largely to fuel its burgeoning fleet of cars and trucks. Streets and highways are clogged with new cars, to the extent that traffic and smog are a nightmare. Some Chinese cities are trying to cut down on new traffic by requiring car owners to purchase expensive permits. Meanwhile, automakers from all nations are racing to establish plants and partnerships in China to produce cars both for domestic use and for export. In fact, low labor costs and increasing product quality in China threaten auto plants located in high cost nations such as the U.S.
Vehicle sales in the booming nation of India are soaring as well. While motor scooters continue to sell at a rapid clip, a growing middle class is also creating great demand for cars. Local industrial giant Tata hopes to launch a no-frills Indian car at a base price of about $2,200 U.S. Other rapidly growing automobile markets include Russia and Mexico, along with many markets in South America.
Not to be overlooked are the vast changes taking place in automobile manufacturing. Flexible factories are reducing man-hours and costs per car, while offering a much wider range of choices for customization to consumers. Today, more than ever, car manufacturers and their suppliers are cooperating in the design and manufacture of new cars in ways that are revolutionizing the entire process.
Inexpensive cars manufactured in China will soon be on the market in the U.S. The question is not whether China will export cars and trucks, but whether consumers will be convinced that they offer safety and reliability. Meanwhile, U.S. automakers are making intense demands on their component suppliers for lower prices—these suppliers are, in turn, looking to low-cost production in China. Meanwhile, the Big Three (American automakers GM, Ford and Chrysler) face difficult times at best. The Detroit companies are under intense competitive pressure from foreign-based firms while enduring high labor costs at home. Ford and GM are both struggling to reengineer all parts of their operations, from design to manufacturing to marketing in order to cut costs and regain market share.
Chrysler has undergone the most gut-wrenching change of all: a new owner. Cerberus Capital Management, one of the world's largest private equity investment firms, purchased Chrysler from DaimlerChrysler AG during 2007. Daimler had purchased Chrysler several years ago, only to find itself battling the many challenges facing U.S. automobile manufacturers. Daimler was more than happy to unload it. The German-based Daimler renamed itself Daimler AG. Chrysler legally became Chrysler LLC. This is one of many major investments made by Cerberus in the ailing auto industry, including investments in parts manufacturers and in car loans provider GMAC. Cerberus hopes to be able to introduce better management, new strategies and greater operating efficiencies in these companies.
While the U.S-based Big Three struggle, Toyota is attacking mercilessly. It has the capacity to manufacture over 1.5 million vehicles yearly in North America. On a global scale, the company plans to sell 10.4 million vehicles by 2009, up from 8.8 million in 2006. The big news is that Toyota most likely surpassed GM in global sales during 2007 for the first time, making Toyota the world's largest carmaker.
The parts manufacturing business in the U.S. is equally dismal. Delphi Corp, the giant supplier that was part of GM until 1999, lost nearly $4.6 billion in 2004 alone and declared bankruptcy in 2005. The company hoped to exit bankruptcy by the end of 2007.
Asian car manufacturers are generally enjoying booming success, with Toyota and Honda at the forefront. South Korean makers Hyundai and Kia have established themselves as true, high-quality manufacturers with a growing global customer base. They will give the Japanese very tough competition.
European manufacturers have challenges of their own. High costs, tough labor laws, daunting government regulations and a few disappointing model designs have hampered recent results.
There is one exciting new development in the U.S. car manufacturing industry: Tesla Motors. This company may be on the verge of a significant success with its revolutionary, all-electric sports car.
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