Auto Car industry

Thy Phan, Chao-Fang Chen, A. Ilondo, Yuenting Chien

BUS 655 Professor: Julius Walacki Nov 2, 2011

The A Team:

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MICROECONOMICS

The motor vehicle is the second most important possession of a great majority of Americans. It plays such a large role in the lives of citizens and the economy in general. To describes the economic contributions of the auto industry to the U.S. economy, it will be to a multitude of U.S. industries such as retail, manufacturing and service sectors, and to individual Americans. Howver, The Big Three, when used in relation to the industry are General Motors, Ford, and Chrysler are facing a multitude of severe challenges

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CHALLENGES
Employment ENVIRONMENTAL
Unemployment rate is rising Funding for research and development Sharp decrease in demand for cars Governmental measures are trying to boost the demand for cars in the short run and to increase investments in R&D for environmental and economic reasons
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TECHNICAL

GOVERNMENT BAILOUTS
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OVERVIEW Past and Current elements in car industry in the United States:
1. In 2009, 5,456,246 passengers cars were sold in the U.S

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Past and Current elements in car industry in the United States:

2. Prices of Steel, Iron and Natural gas has increase from 2010 to 2011

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Past and Current elements in car industry in the United States: 3. CPI change

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Past and Current elements in car industry in the United States: 4. GDP

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EMPLOYMENT
Employment is always a major factor when measuring the significance of any economic activity. It is estimated that each direct auto job supports at least another 5 indirect jobs in the community, resulting in more than 50 million jobs owed to the auto industry. Many people are employed in related manufacturing and services. Autos are built using the goods of many industries, including steel, iron, aluminum, glass, plastics, glass, carpeting, textiles, computer chips, rubber and more. If auto manufacturing were a country, it would be the sixth largest economy. Current problems: Recent unemployment Financial crisis Government Bailouts

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EMPLOYMENT
Employment in the auto industry (people who have jobs in auto industry can be affected) Used Vehicle dealers (cars and trucks) Used Vehicle Operations and Off-Warranty Service Employees Automotive Repair (body, paint, and general repair) Automotive parts and accessories Tire Dealers Gasoline Stations with Convenience Store Oil and Gas Field Machinery manufacturing Petroleum Refining Passenger Car Rentals Automobile Parking Highway and street construction workers

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EMPLOYMENT
In 2011 only 8,249 thousand jobs in manufacturing are available for hire

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UNEMPLOYMENT
The unemployment rate is also a strong indicator of national well-being. Members of Congress have expressed concerns about lost jobs in the automotive sector especially in the traditional auto states of Michigan, Indiana, and Ohio, where job loss has been most intense and has affected all sectors that comprise the auto industry. In Obamas administration an advisers argue that had the president willl invest more than $60 billion into General Motors and Chrysler and more than a million jobs would have been lost. Instead, they say, 334,000 jobs disappeared from June 2008 to June 2009, a period that ends shortly after the bailout began and 55,000 new workers have been hired since 2009

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Environmental Issues
Shortage of raw materials High price of fuel and gas increased energy cost Serious Global warming a progressive de-carbonization of the economy and a better fuel efficiency.

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Prices of Raw material Fossil fuel, Natural Gas

Reference: United States Department of Energy < http://energy.gov/ >

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Global Anthropogenic Greenhouse Gas Emissions

Reference: US Environmental Protection Agency - http://www.epa.gov/

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New innovation - Alternative auto & Alternative energy

Diverse automobiles that run on alternative fuels clean diesel, biodiesel, ethanol, hydrogen, compressed natural gas or that run on hybrid technology using both conventional combustion engines and electric engines to reduce CO2 emission. Automakers (TOYOTA, GM, HONDA etc.) also developing diverse electrical car such as: pure electrical, hybrid electrical, electrical with plugging or with battery, electrical with solar power energy
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New innovation - Alternative auto & Alternative energy

Reference: TOYOTA annual report http://www.toyotaglobal.com/sustainability/sustainability_report/pdf_file_download/05/pdf/report2005.pdf

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Shortage of raw materials

Iron ore is a crucial material for producing steel, it is the most important material for the auto industry. The automobile industry is very concerned by the increase in the price of iron ore, and it will greatly impact the automotive industry.

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Prices of Raw material -Iron ore

Reference: http://www.mongabay.com/commodities/price-charts/iron-ore-price.html
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 If the price of raw materials continued rapid increases in the future speed up the cost pressure of auto industry. To prevent Alternative material: aluminum and other light, substitute material

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TECHNICAL CHALLENGES
The target of auto makers is to manufacture cars with new and higher technology. They also need automakers to step up the pace of innovation in energy efficiency arenas.

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The issues
Inefficient technology
High labors cost and material Capital and bailout

Use of green technology

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Inefficient technology and high prices

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High labors cost and material

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Capital and bailout

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Use green technology

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Use green technology

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The problems that GM, TOYOTA and USs auto industry facing

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The problems that GM, TOYOTA and USs auto industry facing

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The big growth of low cost cars market

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The big growth of cheap cars market

4.5 4 3.5 3 2.5 2 Revenue 1.5 1 0.5 0 2003 2004 2005 2006 2007 2008

Revenue

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Government Bailouts
What is Bailout? ExampleGeneral Motors Corporation and Chrysler LLC
In 2008, Congress pass a $630 billion dollars bill In 2009, the government spent nearly $25 billion dollars of bailout bill to help the Big 3

$1.5 billion for Chrysler Financial.

$17.4 billion for General Motors and Chrysler.

$6 billion for GMAC.

There are two main reasons for the U.S government to bailout the auto industry: 1. 2. Bankruptcy Restore U.S. auto industry

1.Bankruptcy
General Motors face the worst situation in 2009

1.Bankruptcy
Poor Sales

Revenue of the Top Six Automakers Compared to U.S. New Auto Sales

The Importance of the Automotive manufacturing

Average Percentage of State GDP in Automotive Manufacturing, 1998 to 2008

The Declining of the Automotive Manufacturing Industry Automotive Manufacturing in the Midwest and Other States, 1998-2008

The Declining of Automotive Manufacturing Industry Automotive Manufacturing GDP in the Midwest and Other States, 1998-2008

2.Restore U.S. auto industry

Since 2008 -> U.S auto sales dropped 37%
Auto industry bankruptcy People lost jobs Economic become turmoil Government bailout Restore U.S auto industry

Conclusion and Recommendation

The following recommendations need to take place in order for auto manufacturer revive their market power:
1) 2) 3) 4) Use a better measure of technology implementation Have funding such as government bailouts Some quantitative measure of outsourcing for employment Alternative materials such as aluminum, hybrid car, act..

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Thanks for paying attention

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