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Friday, April 29, 2011

The U.S. auto industry stages a comeback

Recent reports have forecasted General Motors will return to the World's number one auto seller sometime in the near future. Reuters reported GMs sales in China were up 10 percent in Q1, 2011 and it sold just over 25,000 more vehicles than Toyota. This is due in part to a culmination of events and steps taken in the last few years, but also because of disruptions caused in the supply chain management of its leading competitor. For the most part, GMs resurgence can be attributed to how the company and the government dealt with the outfall of an outdated business model and financial turmoil amplified by the financial crisis in the late 2000s.

Now that the U.S. auto industry has taken its pain of vast financial losses and bankruptcy in the case of GM, it can start picking up the pieces of its broken industry and reemerge once again into the global auto making industry as a leaner, fuel efficient, cost effective, product friendly and more environmentally friendly set of businesses. Whether or not the new American Auto industry will be in Detroit alone remains to be seen as operational costs may be lower in other locations.

Some of the encouraging news prior to the collapse of General Motors proved to be overly optimistic and was not an accurate reflection of things to come. The American auto industry has a tough path to climb as a number of auto industries that didn't collapse are far more advanced and evolved. Edward Demmings, a U.S. innovator exported his operational methodology to Japan a long time ago, but the U.S. didn't want to change its existing operational model until it was too late. This article will discuss the U.S. auto industry in terms of conditions before and after its decline. In such it will become apparent that not only can news be misleading, but that the U.S. auto industry is in for a change long over due.

Auto industry news prior to GMs bankruptcy

"General Motors Corp.'s second-quarter profits of $891 million were viewed on Wall Street as an important sign of progress in the automaker's comeback bid." (1) The worst is over for Detroit's major automobile manufacturers. For the last year prior to August 2007 General Motors, Ford and Chrysler have been exercising aggressive measures in many fronts to ensure a competitive future for their Global and Domestic market positioning. One need only look at recent developments to realize U.S. auto manufacturers are in the automobile market for the long haul and aren't going to just give up their legacy of Global automobile market positioning. Both General Motors and Ford have been taking drastic but essential measures that will ensure both their survival and competitiveness in the future of automobile manufacturing. A few of these efforts are illustrated in the two following corporate summaries:

General Motors:

• General Motors is already positioned in the Worlds top two auto manufacturers
• Union negations with the Union of Auto Workers (UAW) could lower Health care costs
• Aggressive sales incentives could boost car sales
• Capital restructuring of GMAC and other parts of GM improves cost accounting numbers
• New developments in Energy Efficient automobiles enhances competitiveness
• International profit margins have recently performed well for General Motors

Ford Motors:

• European profit margins have improved for Ford and an 8.2% share of European market
• Niche car markets such as Jaguar, and Mustang have strong brand equity and appeal
• New small sub-compact auto designs could further boost European market share
• Fuel cell technology research such as hydrogen pellets allows Ford to compete 

The video below illustrates how the U.S. auto industry impacts the economy and the magnitude of its effects when it began to fail in 2008:

The new auto industry landscape

Traditionally as Japanese automobile manufacturers have rivaled the U.S. in auto sales and innovation U.S. Auto manufacturers have consistently stepped up to the plate to compete. The current situation is no exception. While the effects of widespread plant shutdowns and layoffs seems daunting this is a necessary step for U.S. car and truck companies so they can adjust for current conditions. The business environment is competitive and the restructuring events of the recent past have reflected that. What they do not reflect is these companies lack of ability to succeed in the future.

To say Detroit is doomed because of restructuring is like comparing apples to oranges. Steps taken to ensure market positioning is the key to these companies reemerging to be global auto industry leaders. The U.S. auto industry has sold off less profitable product lines, restructured its debt and begun the path to a new business model that replaces an outdated antiquated one. The U.S. has the technology, know how, engineering capacity and financial infrastructure necessary to bring itself back into the forefront of the auto industry. This comes at a time when the U.S. is facing challenging competition internationally and confidence in the U.S. economy has wained. What this doesn't have to mean is that the game is over. The video below highlights some of the important reasons why the U.S. auto industry has re-emerged as competitive and how it has done so.

Understanding the U.S. and International auto market is also key to rebuilding the U.S. Auto industry. According to auto industry statistics from the Wall Street Journal, the signs of a declining auto industry became increasingly clear in years past. Japanese manufacturers have gained an ever increasing piece of the U.S. market share. Apparently, many American consumers prefer more reliable, efficient vehicles from overseas. This has to be for a reason and it is these reasons the U.S. Auto industry should consider when re-branding, and re-designing future models. Internationally, the same story is important, obtaining market share means providing quality, reliability, efficiency and vehicle models that match the financial and social characteristics of new generations.


1. http://www.detnews.com/apps/pbcs.dll/article?AID=/20070801/AUTO01/708010343/1148
2. http://biz.yahoo.com/ap/070824/gm_technology.html?.v=4
3. http://www.reuters.com/article/marketsNews/idUKN2434970120070824?rpc=44
4. http://online.wsj.com/article/SB118790376498007050.html?mod=yahoo_hs&ru=yahoo
5. http://phx.corporate-ir.net/phoenix.zhtml