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The once buoyant auto industry is facing a severe downturn today. The slump in demand, overcapacity of many automakers, and saturation of certain `evergreen' markets has placed the very existence of many a player in jeopardy. Companies for their part are reacting with discounts, cheap financing, shutting down plants and undertaking ambitious restructuring programs. These moves might permanently alter the equations in the auto industry.
A good number of economists believe in the theory of a 30-year economic cycle that determines our material well-being. They can find a good ally in the global auto industry in confirmation of their hypothesis. Consider this: Every 30 years a massive increase in consolidation and restructuring occurred in this particular industry, lasting for a decade. In the initial years of the 20th century, General Motors epitomized the early consolidation of the industry. The 1930s and 1960s has seen deepened shakeout and merger, followed by the 1990s. This time around consolidation amongst the auto firmscar, truck, and buswas accompanied by the consolidation of the suppliers as they attempted to meet the new demands and global aspirations of their customers.
The players in the auto industry have voiced their concerns over the slowdown the industry is experiencing as a direct result of the global economic downturn. To add to the woes, the September 11 incidents have created tremendous pressure on the top and bottom line of many auto companies as claimed by them. But this general viewpoint is not convincing. Says James Durance, Research Manager (Automotive) at World Markets Research Centre, UK, "The auto industry was quick to point to 9/11 terrorist attacks and subsequent slump in confidence as being one of the main reasons for the poor performance of many recent companies. What that doesn't tell you is that most, if not all, OEMs (Original Equipment Manufacturers) and suppliers were already feeling vigorous pressures even before the global economy took a battering after the US terrorist attacks."
Every year the competition is intensifying and the industry has moved from a sellers market to a buyers market. Specifically, North American car manufacturers are facing stiff competition from more cheap,
fuel-efficient Asian cars. The weak yen and favorable foreign exchange rates have further dented the prospects of US carmakers as it enabled Toyota, Honda and Nissan to undercut them; other Asian rivals such as Hyundai of South Korea are adding to the capacity issue by opening new US plants.
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