Automobile Industry In Year 2008

2008 brought in its wings some crucial setbacks for the automotive sector. The global recession has hit the industry badly bringing some major automakers to the verge of bankruptcy. Reports state that almost every nation's automobile industry is finding it difficult to survive with financial aid from government. Auto sales in major manufacturing regions have slumped.

$4 Billion Loan Given to Chrysler

After GM received the auto loan, it's Chrysler's turn. Chrysler LLC got $4 billion loan on Friday. The loan was given by federal government in order to rescue the automaker from collapse. The $4 bn loan is provided on low-interest to Chrysler. Though Chrysler had urged for at least $7 billion loan, it has been given just $4 bn of the total $ 17.4 auto loan that was approved by the Bush government. Chairman and Chief Executive of Chrysler, Robert Nardelli said,"This initial loan will allow the company to continue an orderly restructuring, while pursuing our vision to build the fuel-efficient, high-quality cars and trucks people want to buy,"

According to sources, there were few issues in Chrysler's application process that delayed the loan procedure for Chrysler. The recession in auto industry has affected the automaker badly. With the news of auto loan of Chrysler, it is hoped that Chrysler will get a little better.

Awesome New Year Gifts

Its new year season and definitely presents are the best way to express your love for your dear ones. What can be better than gifting them some auto accessories for their vehicle or some new automotive parts & components. As a father get your son or daughter a special gift. If you are a wife just give your husband an auto part that he has been planning to buy for long. He would definitely love it. So, lets begin this year with smile on the faces of our loved ones. Here are few suggestions for some automotive parts that can be great gifts this year..

Auto Gauges
They are the best gift for any automobile lover. Gift the latest models of automotive gauges that will surely add to the look of car interior. The auto industry is full of automotive gauges of different brands.

New Car Tires
Definitely a great gift for new year. Worn out car tires affect the performance of the vehicle, so just get them changed to enjoy a smooth ride. One of the best option while choosing automotive tires would be seasonal tires that are ideal for being used in any season whether summer or winter.

Designer Seat Covers
An important auto accessory, seat covers change the complete look of the interiors. Get your young daughter attractive seat covers that will give a swing to her mood whenever she drives. You might also match the seat covers with her favorite color. If you are more inclined towards fun & excitement, then choose vibrant colored seat covers.

Audio Devices
If you had been waiting for long for getting a new audio device for your car, then this is the best time. Gift yourself a new car stereo for that enjoying foot tapping music. You can choose from the different devices available in the market. The different audio devices include amplifiers, car MP3 players, head units, two way radios, car CD players, car speakers and noise filters.

Get The Vehicle Painted
When you are talking about the interiors of vehicle, how can you ignore the exterior. Give the vehicle a new look by car painting. Get your motorbike or car painted in your favorite hues. You can give a new look to your car by painting the face of an animal on the car's bonnet or hood.

Free Car Repair
Financing car repair will surely please anyone and will come as a pleasant surprise too. If you feel like, just pay the bills of monthly car repair of son. Not only will this be a new year gift, this will definitely help him save some dollars.

These are some of the suggestions for you to give some special gift on the occasion of new year. These priceless gifts will express your passion for automobile.

$6bn More Auto Aid For U.S Auto Industry

It seems it is time for General Motors to rejoice. The US government has made the announcement for expanding the auto bailout of the auto industry. The government will provide an additional auto aid of $6bn. This auto aid will definitely make a huge difference to GMAC. $5bn out of this auto aid would be given to GMAC that is the finance arm of General motors. The remaining $1bn would be given to GM which would use the money to buy shares in GMAC. While funding the auto aid of $6bn, the government has also warned the automakers to use the money judiciously. It has also asked the companies to put forth restructuring plans as soon as possible. If not so, the automakers might have to face bankruptcy by the month of March.

These steps are being taken to bailout the auto industry from global economic recession and automatically suffering from heavy losses. In the first week of December, the US government had pumped in $17.4bn for the survival of U.S auto companies. The government had clearly stated that its can't afford to let the Big Three automakers die. $13.4bn of that auto aid was for the biggest automaker of the world General Motors, that was on verge of bankruptcy prior to bail out.

Year 2008 - Best Electric Car – “Tesla Roadster”

Year 2008 witnessed a number of cars, but those who stole limelight were electric, hybrid cars and concept cars. Amongst all the electric cars launched this year, Tesla Roadster is the best one. This sleek and small model car is not only attractive but also offers a number of features. There are a number of unique features that make these cars special and best electric car of year 2008.

Tesla Roadster is 100% electric sports car with zero emissions . This car offers 135 mpg equivalent , 220 miles per charge. Whereas the horsepower and RPM is 248 and 13, 000 respectively. The car tires and battery of this electric car are recyclable and hence are eco friendly. The battery of this electric car gets fully charged in 3.5 hours. This ultra modern car costs less than 2 cents/ mile and hence helps you save money. The other attractive features include touch-screen navigation, 16″ front, 17″ rear & spoke wheels . It also has all the features for your entertainment like 7 speaker, ipod and 170 channel satellite stereo .

Roadster is an electric car with carbon fiber body and has heated leather automotive seats that come with inflatable lumbar support. The most important advantage of this electric car is that being electric it requires no oil. Well, there is another important advantage that will gives these cars an over the other electric cars and that is – Tesla Roadster requires maintenance after every 12, 000 miles. Wow, that would definitely bring a smile on your face. So, are you really interested in this electric car? I hope so, the last piece of information for you – Price of the car – it is $109, 000.

Canada Follows The Footsteps of U.S Government, Provides $4bn Loan

After US Government announced to provide $17.4bn to the save the automakers from bankruptcy, different nations have also got up from their sleep. Canadian government's has also stepped forward to provide emergency loan to the auto industry. The $4 billion auto loan that has been promised by the government will definitely give a boost to the automakers. Though the amount is mere 20% of that provided by the U.S government, it would prevent the automakers from collapsing.

Prime Minister of Canada Stephen Harper indicated that besides the $4 billion emergency loan, the government would also extend additional insurance to auto parts makers. The government is also on the lookout to come up with a program to finance consumer loans for new car purchases. Mr. Harper said, “I will not fool you, There is obviously money at risk here and there may well be more money at risk going forward. There are literally across the country hundreds of thousands, if not millions, of potentially affected families by the distress of this industry, We don’t want a package that simply helps the Detroit Three,”

While the governments are providing loans, the status of labor agreements between the car companies and the Canadian Auto Workers Union is still undecided. Earlier, the Canadian Union had refused to agree to a wage system by the United Auto Workers according to which new employees would work on a lower wage scale.

Unemployment Is The Future If Automakers Collapse

Oh, yes, definitely, unemployment or job loss will be the future if auto bailout is not taken seriously. Its not only the auto industry that will be affected but also other related industries like media and advertising. Now its upon the Bush administration to decide whether to provide government assistance to Detroit's Big Three automakers or not. Reports and surveys clearly state that if automakers like Chrysler and GM collapse, more than 600, 000 employees would loose their jobs.

The failure of the automakers will be catastrophic and affect 323,000 Canadians who would be jobless. And if the situation remains the same, the toll is expected to exceed upto 582,000 in next five years. Even if the automakers cut down their production by 50%, more than 157,000 jobs would be lost. By 2014, this job loss percentage is considered to rise to 296, 000. If some analysts are to be believed, this situation is difficult to handle and banks will not be able to fund loans to the automakers.

Chrysler to Close Down For A Month

Chrysler is finding it hard to handle the emerging crisis in the auto industry. On Wednesday, Chrysler announced that it will close down all the production work for a minimum of one month. The 30 factories under this automaker will remain closed till 19th of January, 2009. Though its a normal practice for the Detroit's automakers to close the production plants for two weeks at the end of every year, this news is being seen as the consequence of recession in global auto economy. With 46,000 workers employed in Chrysler's factories, this auto news has stirred ripples amongst the auto industry employees.

While Chrysler will close down for one month, Ford has also made the announcement to remain closed for three weeks. The extension of holidays truly depict the deploring condition of the auto industry. Seeking immediate help, Chrysler and other automakers had asked the Bush administration to intervene for auto bailout. An immediate loan for this month of $7 billion and $4 billion was demanded by Chrysler and G.M respectively.

Closing down this week, Chrysler production will remain shut till January 19, 2009. It is also possible that some of the factories might remain closed for a little longer than that.

Should Big Three Automakers' CEO Go?

As the Congress decision on auto bailout is expected this week, the auto industry might have to go through major changes. Will GM be the same post bailout? Has GM's CEO Rick Wagoner's rein led to deploring condition of the company today? Has he failed as in leading the world's largest auto company? Will he be replaced soon?

Barack Obama, President-elect of USA has told the Big Three auto companies to look for a change of top executives if they fail to make fruitful usage of the loans. He also warned the auto industry and asked it to act immediately for optimum usage of the loan. Obama spoke at a press conference, “ We have to have an auto industry that understands they can't keep on doing things the same way. If this management team that is currently in place doesn't understand the urgency of the situation, and is not willing to make the tough choices and adapt to these new circumstances, then they should go." His statement has caused ripples in the auto industry. With such harsh words from the President-elect, is the Detroit's Big Three looking for a change in the top management?

Is the auto industry ready for the change? Its seems that bailout of auto industry would definitely throw out some top executives of auto companies.

US Top Automaker 'GM' going Bankrupt

If General Motors (GM) collapses, what would the condition be? A thought to this question brings the deadly feeling. Will the auto industry be the same or will it be able to recover from the massive loss. If Congress does not approve the auto aid for bail out of auto industry or delays the plan, its going to aggravate the deploring situation at a faster pace.

News from automotive industry reveal that the company is headed towards bankruptcy at the rate of $2 billion/ month. General Motors Corporation that is the world's most powerful as well as largest corporation has facing the economic blues over the past months. Workers as well as management of the companies are joining hands to support the bail out of the auto industry.

Don't Let This Giant Auto Maker Die

If the auto aid is not provided to GM soon, there are going to be adverse situations and the downfall of auto industry would be completely impossible to handle. What happens if GM collapses. Some of the possible consequences (few of which we are are experiencing now) would be:

• Workers are amongst those who would suffer the most
• Suppliers & creditors will face the blow
• Heavy job losses
• Economic crisis would impact every industry related to auto
• Half the workers and dealerships
• Lower market share

What Has Congress In Store For The Auto Industry Next Week

It is now for the world to see what does Congress come up with to help the US automakers in the coming week. President George W. Bush has called on the lawmakers to put forth their plan by next week. According to auto news and market reports, GM needs auto aid between $20 billion & $40 billion, though the company has demanded a bridge loan of $10 billion to $12 billion so that it can make its payments for the bills. Lets see what does Congress ask in return from the auto industry while extending the auto aid to the Big 3 auto companies.

US Auto Bailout - Big Three to Drop Brands & Dealers

The recession in the auto industry is also affecting other major industries. Media is one of these industries that will have to suffer huge losses soon. The new restructuring plans that were announced by the Detroit's big three automakers have revealed that they will be reducing different advertising brands and dealers. This step has come in order to win financial help from the Congress.

Restructuring plans signaled that the advertising industry have bad days ahead. In its restructuring plan, GM has indicated that the famous Saab brand would be sold or closed soon. Whereas, on the brand Saturn, the speculations are going on. Presenting the plan on 03rd Nov, 2008, GM has requested Congress to approve auto loans up to $12 billion as soon as possible. The dropping of Saturn is being taken as a complete surprise by the auto industry. But if GM is to be believed, it is looking for ''alternatives'' for Saturn.

According to latest automotive industry news, different ad agencies like Interpublic Group (IPG), Omnicom Group (OMC), etc. till now received 14% of sales from the auto industry. Now, if brand reductions are new plans of the automakers, media industry especially advertising agencies will surely have major impact on their revenue.

Advantages Of Podcars – There Are A Number Of Them

Podcars will definitely bring a new revolution in the auto industry through their advanced technology. These personal rapid transits would make commuting within a city easier and definitely faster. This isn't the only benefit of a podcar, there are many. Listed below are the different advantages of Podcar – Your 'Personal Rapid Transit'.

1. Rapid Transit - Its the most obvious and common advantage of these podcar. You can travel a longer distance in a short distance.

2. Its Your Personal Car – Since its small and can accommodate just around 10 people, these future cars serve as your personal car that will take you to your desired destination.

3. Privacy – Definitely An Important USP – Being small, this car would be able to accommodate just your family & friends, thus giving privacy to you. You can now easily get away with those strangers on public transit who stared at you everyday.

4. Fossil Fuel – Electric operated, these cars on elevated guideways would reduce the usage and wastage of fossil fuels.

5. Eco-friendly – Unlike most of other automobiles, the podcars do not pollute the environment. Since it uses clean energy – electricity, it does not cause any harm to the environment.

6. No Frequents Stops – As said earlier, since its your 'personal' rapid transit, these podcars would only stop at desired stops. Being automated, this transit would not stop often thus minimizing wastage of time.

7. Reducing Traffic Congestion – Now, that would be of great relief for anybody on the road. As these cars would run on elevated guideways and not on roads, there would be less traffic congestion.

These are some of the benefits. If your see on the positive side, there are many more. But, there are two sides of every coin. This post covered one side and the next post would focus on the other side that is 'The Disadvantages Of Podcars'. Till then, you have a great time.

Here Comes Podcar – Your Personal Rapid Transit

It's small in size, automated/ computer-guided car and it can take you to the desired destination in few minutes. This is the vehicle of future – Podcars.

Personal rapid transit – Podcars are being defined as private, on-demand non-stop travel system. Electricity is the fuel for these cars that would definitely minimize the use of fossil fuels. This is one of the major advantages of podcars but has stunned the automobile industry that might face risks of being greatly affected when such cars become a common sight in cities.

With accommodation capacity between 2 to 10 persons, these cars would take you wherever you want to go. Sounds convenient! Isn't it? Podcars would run on an elevated guideways thus minimizing congestion on the road.

The concept of podcars is gaining momentum. These podcars are definitely becoming a debatable issue in the news of automotive industry. Now, as every new technology has something good and bad to offer, this one has them too. I'll be covering the benefits of these podcars in the forthcoming posts. Till then, be optimistic to get a ride soon in the podcars that might be coming soon to your city.

Are Luxury Car Sales In Deep Trouble?

Just as the auto industry struggles to remain afloat, so do the segments it's made up of. And luxury car sales are no exception. Since, luxury automobiles are faced with a double whammy of being high priced and being gas-guzzling, are we to see their sales go from bad to worse?

Automobile and auto part sales have generally been affected negatively, owing to high gas prices and economic downturn, with auto stocks showing spikes only sporadically, as crude prices lower a bit. Now, when it comes to the sales of Luxury cars and trucks they've taken a hit of 11% year-to-date (YTD), while the auto sales throughout the US have been down by 18%.

Based on the figures above, it appears that luxury sales are much better than the rest of the industry and since they only account for for just about 10% of the industry's sales, they won't have much of an impact. The margins however, on all products within the segment are large, and which is what makes it valuable.

At the same time, given the shift in demand from gas-guzzling automobiles towards smaller ones, it appears that no one would go for them, but the recent announcement by the General Motors Corp of an SUV, Cadillac Escalade Hybrid indicates that auto makers have different expectations. And it seems that they might be right because the high-end products are directed towards a different target audience altogether. The target segment for luxury vehicles shouldn't have problems with affordability per se, including paying for high gas prices, while the need to acquire high-end products persists.

The factor, aside from the gas-guzzling ability that could affect the purchase of bigger automobiles is the perception that these vehicles are less environment friendly. Now while demand might exist, whether the big autos sell well or not seems to depend on a lot more than their uniqueness. But auto makers seem to have an answer to even this conundrum by producing hybrids, which have a better standing when it comes to eco-friendliness. The Cadillac Escalade hybrid seems to be proof enough, and perhaps other car makers like Toyota or Ford would follow suit if the experiment goes off well.

On the whole some rough weather does loom large over the luxury car segment, but given the efforts auto industry is ready to put in, luxury sales could sail through the storm, quite well.

The US Auto Industry’s Worst – Is It?

Carnage of the automotive industry continues, with each passing week throwing in a host of surprising knock out news. Be it the auto major Toyota overtaking GM in auto sales, or the deepest nosedive of Daimler’s stock since 1998, or the Ford’s job cuts of 200 salaried jobs to achieve a 15% workforce reduction by August 2008. Each is indicative of the prevailing turmoil, and has repercussions.

As consumers choose smaller cars auto part manufacturers brace up for supplying more of small car parts. And auto makers have begun contemplating mergers as a more creative way to sail safely through the storm.

June 2008 has seen the worst performance for the US auto industry since 1993 based on Y-on-Y month comparisons, a JD Power news release notes.

Here’s a comparison between 2007 and 2008 light vehicle sales.


Harrowing Forecasts

Earlier, the projections for the sale of light-vehicle for 2008 was about 14.95 million units, but today the forecast stands corrected at 14.2 million units for the year.

Take a look at the US light vehicle sales during the last 11 years.

Compared to 2007, a 12 percent decrease is expected for light vehicle sales in 2008. Further, the decrease would spread over differently across segments.

For instance, while the retail sales are projected to decline by 10 percent to 11.6 million units, the fleet sales would experience a 21 percent decrease to 2.6 million units.

Trends

Almost double the decrease is expected in fleet sales when compared to retail sales. The trend is indicative of the notion that manufacturers would reduce fleet sales, while continuing to salvage earnings from retail sales during the low phase. Incentives too are supposed to be moderate.

Another obvious trend is that consumers’ are switching to smaller vehicles ever since concerns about fuel economy increased, and skyrocketing gas prices fueled the worries more than ever. While the sales of SUV’s have decreased for sure, but the simultaneous increase in sales of smaller autos hasn’t been sufficient to offset the losses due to the fledgling sales in SUV segment.

The following graph shows the shift in sales from last year based on the types of automobiles.

Consider this, compared to the first half of 2007, the 2008 sales figures for SUVs did plummet by 26 percent during the corresponding period, the concurrent compact car segment sales were up only 28 percent. Not enough to make up for the decrease in SUV segment.

A lack of a sharp enough rise in sales in the compact auto segment can in part be attributed to inefficient supplies. For instance, the number of days these cars rested with the dealers (the “days to turn” measure) was an average of 57 days from January till June 2008. But it did show an improvement from May through June by averaging 47 days.

The Reasons

Although the hike in gas prices is often cited as the prime reason affecting the auto industry, other factors such as a weakening economic circumstances (viz. rising inflation, higher unemployment), and the long term side effects of the credit crises are in no way less important.

The Worst Is Yet To Come

Every time things worsen I wish that this is the nadir of it all, but an overwhelming majority of experts opine, that this is to last till at least a year. And now even the earlier forecasts for lower sales have been downgraded further.

Realistic expectations are that the worst is indeed yet to arrive, and that June’s dismal performance isn’t anything out of the ordinary. In fact it’s just a page in the book of industrial downturn. A year’s time is the least that’s needed before things begin to look up. But even a year later it wouldn’t be like abruptly waking up from a nightmare. As in 2009 too, a sudden recovery isn’t expected. Only a small upping to 14.3 million units in sales is forecast, with most of it attributed to retail sales.

Aside from the forecasts, if you’re a marketing pro in the auto parts industry, or are simply interested to know where consumers go about hunting for information before buying cars, check out this post: Automobile Buyers' Hunting Ground.

Auto Industry Turmoil - How Long will it Last?

This year has been tough on the auto industry worldwide, for the most part due to rising fuel prices. The North American automobile industry has been especially hit.

In North America

The biggest buzz seems to have sprung form the Meryl Lynch report, and the idea that they couldn't rule out bankruptcy for the world's largest automobile manufacturer, General Motors. At the same time the company's stocks fell to a 54-year low. And all of it ocurred at a time when GM reported uninspiring sales figures (i.e. 265,937) in June this year.

In order to avoid bankruptcy, GM would need to raise $15 billion in cash as has been said. While the company hasn't responded to the report, but it thinks that it's got enough cash for 2008 and that it would take the required measures if needed.

However, it's not just GM that took the hit, Toyota's sales also came down by over 21%, while Ford's figures showed a drop of 28.1%. For the most part the mechanism seems to be the same, that is lower demand for gas-guzzlers owing to high fuel prices.

Meanwhile in Canada the trend has been replicated with the auto sales plummeting by 5.7 percent from last year to reach 159,500 vehicles in June. The drop is significantly higher than the 0.5 percent fall in May.

In Europe

It seems that the economic downturn and the fuel price hikes have impacted European auto industry too. This could be seen in the drop in the number of new vehicles registered in June. While in Spain the drop was to the tune of 31%, in Italy the registrations came down by 19.5%. However, surprising as it might seem, the German car sales have picked up despite the odds, by 1% in June, and so have the French auto sales, which registered an improvement of 2.1% from June last year.

In Asia

The Japanese auto industry isn't celebrating at all, although it did a couple of days back. If you take away the sales of minivehicles, the sales for June have come down by 3.6% year-on-year to halt at 281,261 units. There's also a sentiment around in North America that many Asian nations such as China, Japan, Korea bolster their auto industries with subsidies, but it's different for the industry in North America. At the same time, one reason the cheap labor in many Asian countries, which is because they don't have a well-unionized workforce, and hence don't demand hefty benefits as is the case in the west.

So How Long is it going to last?

Predictions were made earlier as well, wherein it was said that things could begin to look up for North America by 2009. However given the present trends, some experts feel that for the North American industry revenues could decline in 2008 and 2009. And that we could see increasing losses as the year-end approaches.

Well, forecasts are after all forecasts. While the sun's certainly not expected any time soon, but what actually happens only time will tell.

Is Auto Part Outsourcing In Reverse Gear Now?

Given the recent development in the auto industry, it appears that the big car makers in the US are looking eastwards in search of markets.

The sales of automobiles during the month of June in the US, is close to drop to an annual rate of 12.5 million units. Last year this figure was 16.3 million units, the differential amounts to a 15 per cent fall. The Canadian industry on the other hand is dealing with its own challenges.

Coinciding with these developments, the Big three manufacturers, namely GM, Ford and Chrysler would be exporting goods worth US$ 2.2 billion to China. The goods would include both the vehicles as well as automotive parts. There could be more deals such as these, following economic talks between the U.S. and China, which are to be held soon.

Why is China a promising destination?

Not to mention that the Chinese auto industry has it's own share of troubles, but it is still one of the most happening markets. According to a projection by Mckinsey, at present the country has the highest sales-growth rate for automobiles. Moreover, by 2010 it is expected to attain mammoth proportions and become the second largest market, just behind the USA.

There's little doubt about the fact that China's automobile production has been on the rise for years now. See below for the automobile production by the country during the past couple of years.
Between the years 2001 to 2005, automobile consumption in the country experienced CAGR of 54.42%. While the consumption showed an increase, the real promise lies in the fact the country still had only 11 automobile units for every 1000, and that's a much smaller market penetration of vehicles compared to other countries. For instance, in 2007, UK had 373 cars per 1000, US had 478 cars per 1000, Australia 485 had cars per 1000, Japan had 395 cars per 1000 and Italy had 539 per 1000.

However, simply because many people don't have cars doesn't make China a promising destination, the prime indicator of purchasing power (i.e. Per capita GDP) has continuously been on the rise. For example, in 1991 it wasn't even US$ 1000 but by 2006 it rose to US$7600. See below for the trend of the rising GDP. (the figures have been calculated in Chinese Yuan)

Not surprising then that the annual report 2007, of the largest Chinese automobile manufacturer Shanghai Automotive Industry Corporation (SAIC) anticipates selling 1.90 million units of complete vehicles in 2008.

On the whole China seems to be a hot spot as far as the automobile industry is concerned. As far as the US is concerned, though there may be some differences between the two countries about investments, but as it is learned the high ranking U.S. and Chinese officials are working to smooth out even those.

Is It Rough Weather For Chinese Auto Parts?

The Chinese auto parts industry has consistently performed and grown over the past few years. However, now it may up against some tough times owing to increases in wages, local currency and prices of raw-materials.

The Times Bygone

Last year in 2007, the market growth of the China experienced record high growth in terms of both production and consumption of automobiles. As people's incomes rose so did consumption. The year 2007 witnessed a production of 8.88 million units and consumption of 8.79 million units.

In terms of exports China registered US$ 2.09 billion worth of trade. A year before that in 2006, the sales revenue of the Chinese auto part manufacturers reached US$ 58.30 billion. What's even more intriguing is the fact that the Chinese auto parts production is projected to reach US$ 115.6 billion in 2010.

A lot of this growth is attributed to roughly 1,000 auto parts oriented industrial throughout the nation, and that about 10% of these lie in prime regional development zones and clusters.

The Present Scenario

The present year is being seen as a year of correction year. According to the National Statistics Bureau, China, the growth rate witnessed during the first two months of 2007 was 90%. However, over the same period this year, it's just been 37% a big difference of 53%. Undoubtedly the growth rate has suffered quite a lot.

Increasing Raw Material Costs

The costs of raw materials such as oil and aluminum have risen, which in turn seem to have affected the cost of production. The manufacturers of automotive wheels and tires are worst hit as a consequence. On similar lines producers of molded plastic parts and automotive accessories for cars have also taken a beating.

Appreciating Currency

The Chinese Yuan has also witnessed the highest growth against the dollar since 2005, when the Chinese government took measures to liberalize the exchange rates. The appreciation has been to the tune of 14% or so against the US dollar, and most of the appreciation has taken place during the past year.

Considering the appreciating currency, it's a no-brainer that the first quarter of auto-parts exports this year grew at a rate of 24%, which is a good 9% lower than 33% last year and same quarter.

Rising Labor Costs

It's one of the most important constituent of production cost, and was also the one that gave the Chinese auto accessories and parts manufacturers an edge over manufacturers in US or Europe. Consider this, labor costs in China contribute only 5% to the cost auto parts produced, whereas in Europe or in the US it's much higher and lies between 20% and 30%. However, during 2005 the wages experienced a hike of 40% in that year itself, diluting the comparative advantage somewhat.

On the whole, the times for the Chinese auto parts manufactures do appear to be tough, and that the smaller fish are expected to take a bigger hit. However, as the Shanghai Daily reports, many Chinese companies are seeking consolidation through mergers and acquisition, enhancing managerial expertise and becoming more export oriented to overcome any roadblocks to growth.

Japan's Auto Exports To Reach 7 Million

The year ending 2009, Japanese automobile manufacturers are expected to register 7 million auto units in exports, the highest ever exports by the country in 23 years. This feat would be possible due to the rising demand for automobiles in the Gulf nations and South America, and other countries, reported the Nikkei

The graph below shows Japan's exports from 1997 through 2007.

The news comes at a time when the North American auto industry is up against tough times with declining production and sales. The US market is particularly hit with the May 2008 auto sales down by 14%. As I had covered earlier that the Canadian auto industry also grappled, but the outlook was to get brighter by the end of 2008. A recent report from the Conference Board of Canada projects that the Canadian automakers' efforts to reduce costs would cut losses by $430 million and would help it to earn a profit of US$155 million this year.

The projections further note that though the Japanese auto industry exports to North America would decrease by 8%, it would make up for it by exports to other regions. Moreover, these projections are also in contrast to the reports of the expected fall of 26% in pretax profit for the Japanese auto industry including the auto part manufacturers. The forecast is welcome for Japan for sure, but possible appreciation in Yen and increases in raw material costs would also affect how the industry actually fares?

The contribution of the Japanese auto industry to the country's economy is large. Not only does the industry accounts for 10% of employment, but also contributes over 10% to the output of the manufacturing sector.

The following graph features the number of motor vehicles produced in Japan during the last 10 years.

Japan's stock market reached its highest mark this year after the Japanese automakers registered higher sales. Further, as the Yen weakened against the dollar, it raised the hopes for the Japanese exporters. Nikkei reported an average rise of 1.2 % on Wednesday and the top Japanese automaker Honda Motor Co Ltd. reported good growth in contrast to the rest of the industry in the US.

There's word about inflation around, but with the recent developments in Japan, it might have spelled the end of deflation for the Japanese industry.

The Canadian Auto Industry Present & Future

The Canadian auto industry’s production may well have declined this year with the profits projected to drop by 14.7 per cent to $1.5 billion, the latest report released by the Conference Board of Canada suggests a brighter outlook in 2009.

After a great showing in auto production and sales during the beginning of the millennium, Canada’s auto production has recently been negatively affected. Despite, the stepped down production, the Q1 sales for 2008 have been 372 243, which is still higher than the 2007 figure of 348 991 in the same quarter.

The Pale Present

Since the industry went down after 2002, the total number of job losses in Canada's auto parts industry has been 32,000 and was the highest in the year 2004. International competition from Mexico and China is said to have contributed to these job losses. However, as per the projections, the employment figures are slated to show some stability and range from 107,000 and 108,300 workers till 2012.

As has already been conceded by General Motors Corp that the US auto industry is in recession, this factor too has contributed to Canada’s falling production figures. Canada exported US $75.5 billion worth of automotive goods to the U.S. in 2006. Ranked at the 9th position in the world for motor vehicle production, Canada was a major automobile producer in North America with a share of 16.2 % in 2007. The Canadian suppliers are expected to face some rough weather ahead this year as about 57% of their products are shipped to the United States, the reports suggests. The decrease is expected to be around 14.7% or $1.5 billion in fiscal terms.

The present recession in the US markets have already forced the automakers to slash their prices by a big margin, however despite their efforts the sales are forecasted to be the lowest in the past ten years. On the other hand it is expected to be a third successive fall in sales for auto part manufacturers.

Amongst other challenges that the industry faces is the competing with low-cost foreign suppliers of auto parts viz. braking system, automobile transmission system, automobile engine, etc.

The Hale Future

The Canadian economists suggest that while the industry is experiencing tough time, the continuing investment in the sector, and the high efficiency of the Canadian manufacturers has the potential to lead to job sustainability.

The weather is supposed to change for the better by 2009 as the demand for products in the US gains pace and new manufacturing units surface towards the end of 2008.


Already in the pipeline is the opening Honda's Alliston, Ontario manufacturing unit by the end of 2008. Further, coupled with the production increases of the Toyota's new plant in Woodstock, Ontario it will perk up production by 6.9 per cent in 2009.

Adding to the momentum of growth would be the stable performance of the manufacturing units of Ford Motor Co, General Motors Corp in both US and Canada as a consequence of the new labor contracts valid till 2011. The measures taken to provide tax rebates by the federal and provincial governments would further aid suppliers of parts and automotive tools.

The forecast also includes better exchange rates, and export activity picking up to serve a varied international clientèle, and cause the profits to reach $1.9 billion by 2012. With so many changes taking place in the economic environment the profits after falling in the recent future would stabilize and continue to increase at the rate of 5.7% to 5.8%.

All in all, there’s undoubtedly some hard time ahead for the industry in the coming months, but thankfully the gloom isn’t going to last long and boom would surface by the year-end. At this point I remember a quote from Benjamin Disraeli, "Nothing can resist the human will that will stake even its existence on its stated purpose."

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