-- The automotive industry is expected to go through a series
of changes over the next few years. Sean McAlinden, Ph.D.
is the Chief Economist and Vice President of Research for
the Center for Automotive Research (CAR) in Ann Arbor. He
discussed the road that lies ahead for automakers in the U.S.
was the first speaker at the seminar. He spoke about the economics
behind the auto industry. His first point was about General
Motors. GM has cut costs and is saving $2,500 per unit. They
still have to cut $2,000 per unit to become profitable again.
Ford is on the same track but they are 10 to 30 months behind
is "Trying to rebuild three companies by the end of
the decade," McAlinden said. "No longer a
Big three market."
U.S. automakers need to start making money by selling passenger
cars. Trucks are the only segment that is profitable for automakers
such as Ford, GM and Chrysler. Ford is trying to make a comeback
in the car division.
confirmed that the auto industry is still very important to
America. One out of every 10 jobs in the U.S. is somehow related
to the automobile. He said 78% of the manufacturing plans
in the country are being utilized and 22% of plants are considered
to be idled. In 1999, there were 1,128,400 manufacturing jobs.
By 2006, there was only 903,100 jobs. The state of Michigan
has lost 105,000 jobs, a 33.6% decline.
the U.S. is loosing automotive jobs, they are being created
in other parts of the world. In Asia, the number of auto-related
jobs have increased from 30% to 37%. In China, they are producing
6 million vehicles per year.
GM was #1 for world sales with 12.7% of the global market
share. Toyota finished second with 12.3% of the market share.
Ford finished third with 11.3% of the global market share.
Many experts believe that Toyota could surpass GM as the world's
#1 automaker in 2007. GM earned more than Toyota only one
time, in 1999. Over the last six years, Toyota has earned
is a no growth market. If the 2007 GDP is below 2.5%, sales
will fall. Fewer buyers in the market. Baby boomers not visiting
dealerships," McAlinden said. "Generation
X too small. Generation Y not in market yet."
sales took the biggest hit in recent years. For the Big three
automakers (GM, Ford and Chrysler), sales of light trucks
are down by 8.2%. For imported cars, sales of light trucks
are up by 8%. Sales of Japanese trucks are up by 3.3%.
expected to happen to the Big three? "The U.S. is
a Big six or seven market. The Big three market is dead. Detroit
Big three market share will fall below 50% by 2011. Internationals
will be up 54.8% by 2011. The crossover point is in 2007."
are many reasons for the decline of the Detroit Big three.
First, the automakers have placed too many of a reliance on
car sales and employee sales. Huge legacy costs (such as retirees,
health care and labor) are hurting the automakers. Ford, GM
and Chrysler need to make $5,500 per unit to catch up with
Toyota and Honda's profit margin.
boom is ending. Sales of trucks made U.S. automakers very
profitable in the 1990's. Higher gas prices have changed the
minds of consumers. They are purchasing smaller cars and Crossovers
(CUVs). As the gasoline prices go up, Big three market share
goes down. Sales of CUVs is up by 8.5%. They will encompass
25% of all sales by 2011. Just one year later, SUVs are expected
to disappear completely from the market.
need something to compete with the Honda Accord and make money,"
McAlinden said. "It has to be built here to make a
sales are up. McAlinden sees them as "a stepping stone
to flex fuel and fuel cells." Just the battery alone
costs between $1,500 and $2,200. When you take into account
all the parts that are needed to add an electric engine, a
hybrid car will cost between $3,000 and $5,000 more. It takes
the consumer eight years to pay back that money.
last decade, dozens of suppliers went bankrupt. Of those,
Delphi in September 2005 and Dana in March 2006. The prices
of new cars and trucks have dropped by 4%. Meanwhile, the
cost of parts have gone up by 1.3%. Steel, aluminum and plastic
have all become more expensive. Foreign auto parts companies
have begun opening shops in the U.S.
have offered record rebates to it's customers for the last
four years. This has hurt the automakers themselves. GM earned
the least amount of revenue out of all the automakers competing
here. Kia made more money on car sales than GM.
the story is completely different. The automaker is planning
to increase U.S. production from 1.6 million to 2.4 million
vehicles. Meanwhile, U.S. automakers have closed 59 of their
Ford are in the middle of restructuring efforts. On January
2nd, 14,000 workers left General Motors and took the buyout
offer. Of the Big three automakers, GM pays the highest health
costs per vehicle. On an average car, GM pays $897 for retirees;
Ford pays $593 per vehicle and Chrysler pays $370 per vehicle.
GM and Delphi had 129,000 employees. By 2009, they are expected
to have only 80,000 workers. Many automotive jobs have moved
down south. The Northern section of the U.S. has lost 20%
of automotive jobs. At the same time, the South has seen an
increase of 43% more automotive jobs.
will be an important Union bargaining conference later this
year. Legacy costs will be one of the major issues on the
table. They will ask for more federal assistance for retirees.
Funds have come from Washington to pay for more research and
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McAlinden, Ph.D. speaks to reporters on the eve of the 2007
NAIAS Press Preview.