Rebooting strategy for global recession in automobile industry

* B.pradeepa Abstract
The automotive industry crisis of 2008–2009 is a global financial crisis in the auto
industry that began during the second half of 2008. We will be briefly discussing
about the recession and Rebooting from its recession in
 Global recession
 Global automobile industry
 Current recession impact
 Downfall of automobile industry
 Rebooting strategies
 Forecast of global automobile market
 Conclusion
*MBA(IT) AVINASHILINGAM UNIVERSITY FOR WOMEN

Global recession
A global recession is a period of global economic slowdown. It is said to be recession
if GDP (Gross Domestic Product) growth is negative for a period of two or more
consecutive quarters.

Global automobile industry

Automobile industry has a special impact on the daily life of the modern day man,
which requires fast mobility with reliability. Automobile and automotive parts are
components manufacturers make the major portion of the automotive industry throughout
the world.

 This sector gives employment to major chunk of human population in the world
i.e. 25 million. There may be a crisis in the industry during 2008-2009 which we
are going to see about.

Downfall of automobile industry

 Automobile manufacturers, particularly those in Europe and Japan, are also suffering
from the crisis.

 The automobile and automotive parts & components manufacturers constitute a

major chunk of automotive industry throughout the world
 The auto parts manufacturing industry of Midwest lost 12.7% of its employment.

The various factors behind this decline are unemployment recession, domestic
relocation and foreign competition. This loss in employment has badly affected the
automobile industry.

1. The automotive sector was initially weakened by a substantial increase in the

prices of automotive fuels linked to the 2003-2008 energy crisis.
2. The fuel price led consumers to shy away from vehicles
3. The popularity and high profit margins associated with the vehicles had led them
to become the primary focus of the American "Big Three" automakers, General
Motors, Ford, and Chrysler
4. The Big Three also suffered considerably from the higher wages they were forced
to pay their unionized workers, including greater salaries, benefits, healthcare, and
pensions.
5. In return for labour peace, the automakers had granted concessions to their unions
that resulted in uncompetitive cost structures and significant legacy costs
6. In 2008, the situation turned critical, as the global financial crisis and the related
credit crunch placed pressure on the prices of raw materials.
7. The American companies had neglected development of passenger cars and
instead focused on light trucks due to better profit margins, in order to offset their
higher labor costs.Many of the vehicles perceived to be foreign were actually
"transplants", foreign cars manufactured or assembled in the United States, at
lower cost than true imports.
8. Many consumers are scared, and consumer credit is as tight as we have seen in
decades. As a result, auto sales have plummeted.
9. The thesis of this series is that companies and individuals should be embracing
the downturn...i.e., making the most of the changed circumstances.

Current recession impact

Automotive suppliers are facing deteriorating financial performance. The bottom line
is that global automotive supplier profitability collapsed in 2008 to around 3% EBIT
margin (2007: 5.4%). "Looking ahead, we project an all-time low in 2009 with an
estimated EBIT margin of around only 0%,"

At present, the combined capacity of all the car makers throughout the world amounts to
more than 90 million cars annually. The deadly demand destruction being inflicted by the
Global Economic Crisis has reduced purchases to about 50 million units per years,
meaning that the world’s auto companies have nearly double the productive capacity that
can be absorbed by current consumer demand.

practically every major auto manufacturer is faced with the identical problem; over-
capacity that was established with high margins of leverage, leading to massive losses
with a worldwide demand for only 50 million cars each year.

Rebooting strategy
Society of Indian Automobile Manufacturers (SIAM), India’s apex industry
association representing all vehicle and vehicular engine manufacturers in the country,
will be organizing its Annual Convention in New Delhi on 28th August 2009. The theme
for this year is 'Auto Industry: Revival, Restructuring & Sustainable Growth'.

More than the United States for the first time.China seems to be entering the usual time
when everyone suddenly has to have a car - that is when real per capita income
approaches $US4,000 per annum.

 In Korea in the mid-1980s, after which car sales surged by 30% a year for a full
decade - nearly three times faster than income growth. Similar accelerations in car
sales happened in Japan and Canada in the early 1970s and in the United States in
the 1960s.
 New model implementation .The top selling Chinese brand is General Motors,
which sold 814,000 cars in China in the first half of 2009 - only 130,000 less than
it sold in the US. GM plans to launch more than 30 new Chinese models over the
next few years and expects to be selling two million units a year there by 2014.
 Back in Detroit, GM is out of bankruptcy and cutting costs, as is Ford and
Chrysler. The industry is paring down to be profitable in a 10 million unit market.
Since sales are likely to rebound to 15 million the car companies are going to
make a lot of money.
 Retail sales scheme Officially, US car sales were 17 million a year before the
recession that was an illusion because manufacturers were dumping cars with
rental companies. Genuine retail sales have been declining for a decade.
 Officially Car Allowance Rebate Scheme - CARS,In any case the "cash for
clunkers" program, as it's called has directly resulted in more than 2 million sales.
The program, which has now been extended with another $2 billion from
Congress, offers a rebate of $US3,500 to $US4,500 if a car is traded in for another
one that does 10 miles more to the gallon.
 Bonus scheme In Germany, the government pays a bonus of €2,500 to anyone
who trades in a old car for a new one, which resulted in an immediate 30%
increase in new car registrations.
 Interest free loans There are similar schemes all over Europe: up to €5,000 in
Italy depending on carbon emissions, interest free loans in Spain, also depending
on emissions, and various schemes in France, Austria, Portugal, Romania, Cyprus,
 Slovakia and Netherlands. Britain also introduced a scheme, but mucked it up so
it hasn't worked very well.
 However, all these schemes are scheduled to expire at the end of 2009, so with
unemployment likely to be still rising then, vehicle sales may fall again next year
after increasing this year.
 But in the meantime, The car scrapping schemes have been taking the recession
to the wrecking yard.
 Morgan Stanley's economics team reckons that car production could add as much
as 6 percentage points to annualised third quarter GDP, which should ensure a
positive GDP number for the quarter.
 Something similar is happening in Europe, with both consumer spending (on cars)
and industrial production rising strongly, so that Eurozone GDP is likely to be no
worse than flat in the third quarter, after declining by an expected 0.7% in second.

Forecast of automobile market

Market Forecasts
With the upcoming marketing strategies of the manufacturers, the auto parts industry is
expected to have reached a value of USD 586 billion by year 2009. According to reports,
the compound annual growth rate of this industry is 2.6% for the period of 2004 - 2009.

Global Auto Components Forecast Value - USD billion 2004 - 2009

Year USD billion % Growth
2004 515.5 2.30
2005 526.2 2.10
2006 538.9 2.40
2007 553.4 2.70
2008 569.1 2.80
2009 585.9 3.00
CAGR 2004 - 2009 : 2.6%

It is believed that by 2015, the global auto component industry would reach US$ 1.9
trillion. With different low cost countries emerging at a fast pace in this industry, it is also
expected that around 40% of the money will be sourced from such countries. India is one
of such low cost countries. At present, it has only 0.4% of the global auto components
trade of US$ 185 billion. By the year 2025, it is expected that India might be among the
top five auto component economies.

Conclusion
 From the above information we conclude that there was an increase in fuel price, so
there was reduction in the usage of automobiles even the unemployment problem,
recession and domestic relocation are the reason for this decline.

So the car company have started to introduce new schemes like introducing new
models, interest free loans,official car allowance rebate scheme to reboot the automobile
industry
 2000 60007000
8000 9000
Country 1000 3000 4000 5000 10000
11000
12000
 60007000
8000
9000
Country 1000 2000 3000 4000 5000
10000
11000
12000
Japan 11596
United
10781
States
PR
8882
China
6213
German (includes
y GM
Belgium)
South
4086
Korea
France 3019
Japan 11596
Brazil 2971
Spain 2890
Canada 2578
India 2307
Mexico 2095
UK 1750
Russia 1660
Italy 1284
Thailan
1238
d
Turkey 1099
Iran 997
Czech
939
Rep.
Belgiu
844
m
Poland 785
United
10781
States
PR
8882
China
6213
Germa (includes
ny GM
Belgium)
South 4086
Korea
France 3019
Brazil 2971
Spain 2890
Canada 2578
India 2307
Mexico 2095
UK 1750
Russia 1660
Italy 1284
Thailan
1238
d
Turkey 1099
Iran 997
Czech
939
Rep.
Belgiu
844
m
Poland 785