Automotive Fuel Economy How Far Can We Go? (1992) / Chapter Skim
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5 IMPACTS ON THE AUTOMOTIVE INDUSTRY
5 IMPACTS ON THE AUTOMOTIVE INDUSTRY
Pages 90-106
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From page 90... ...
, new fuel economy standards that are extremely costly to implement or that greatly distort the normal product cycle of the industry would place an enormous financial burden on domestic automakers. Hence, the impacts on the industry are central to the discussion of new fuel economy targets.
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From page 91... ...
Even though Chrysler, Ford, and General Motors have diversified through foreign vehicle production and sales, as well as nonautomotive activities in financial services, defense electronics, and vehicle rental companies, vehicle production in North America is an important part of their total sales. The level of vehicle demand is the primary factor in determining profitability, but market share and the mix of cars and trucks and of small and large cars also influence profits.2 ~_ The domestic automotive industry emerged from the recession of 1980-1982 (when it posted a cumulative loss of $4.1 billion)
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From page 92... ...
Whereas the U.S. companies have experienced record losses, the principal Japanese automobile companies have experienced only a decline in profits.
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From page 93... ...
EFFECTS OF COMPETITION Industry Trends The competitive situation of the domestic industry could be adversely affected by any government policy that imposes added burdens on the industry that hit domestic manufacturers harder than foreign manufacturers or that imposes costs significant enough to reduce overall vehicle demand substantially. Despite worldwide capital spending of $90 billion between 1983 and 1989, the domestic manufacturers lost ground in terms of market share to the Japanese automakers.
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From page 94... ...
, imports of European automobiles, and vehicles produced by General Motors, Ford, and Chrysler constitutes a potential supply that could far exceed demand in 1995, even with General Motors' decision to close six more plants. For the foreseeable future, the pressure on profit margins will prompt the withdrawal of some companies and the closing of more domestic capacity.7 The North American motor vehicle market remains the most open major market in the world, and thus, it is the target market for foreign manufacturers who wish to expand or shift production.
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From page 95... ...
SOURCE: Based on information from the automobile manufacturers, Autofacts 199 i Yearbook (Autofacts, Inc. West Chester, Pa.)
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From page 96... ...
indicated that 5,932 assembly workers would be used in such a plant. Indirect employment is also generated in industries connected to the assembly plants.
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From page 97... ...
, the UAW estimated that for every 200,000 to 250,000 vehicles imported, 30,000 jobs in assembly plants and supplier companies would be lost, or roughly 7 to 8 jobs per car. 42The 1990 contract with the UAW allows elimination of one job for every two employees who leave.
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From page 98... ...
market by expanding their product offerings into low-volume specialty and luxury models. Today, the American consumer can choose among approximately 290 nameplates of cars and light trucks, compared with 170 only 10 years ago.~3 The domestic automotive industry has traditionally relied on large volumes of a single model to attain production efficiency.
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From page 99... ...
Features that are more easily incorporated with major changes can be introduced more rapidly. Tools and equipment that are model specific can be written off over the short life of the model.3 4 Because domestic manufacturers have followed longer product cycles, they are less nimble in the marketplace than their Japanese competitors.~5 The best Japanese automakers have developed a production system that enables them to produce efficiently at a smaller scale than the American manufacturers while manufacturing products of high quality (Womack et al., 1990~.
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From page 100... ...
The prospect of lower vehicle demand, further losses in market share, and significantly higher fixed costs raises questions as to the domestic industry's capacity to fund investments to close the competitive gap with the Japanese and to meet the safer and emissions standards that have been enacted. Investments in fuel economy technologies that force the early retirement of models or components, or that must be accomplished outside the planned spending cycles, could place an untenable financial burden on domestic automakers.
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From page 101... ...
The product-development and depreciation strategies of domestic automakers -- as well as significant spending into the early 199Os -- are a potential obstacle to investment for the rapid introduction of new technologies beyond those already planned. If fuel economy standards are enacted that make vehicles, production equipment, or key components obsolete before their normal retirement, the industry's financial condition will be compromised.
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From page 102... ...
In addition to the structural changes, the American automotive industry must confront a series of regulatory requirements for safety and emissions control in the 199Os. There is also the prospect of international regulation of greenhouse gases.
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From page 103... ...
Department of Commerce and Motor Equipment Manufacturers Association, 1990~. Canada has had higher gasoline prices than the United States for more than a decade and currently has gasoline prices about 60 percent higher than in the United States.
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From page 104... ...
and, with that incentive to the consumer for favoring gas-saving technology, consumers might be more welling to accept a variety of technologies, including direct-injection diesels and engine on-off, among others, to accomplish the goal.20 FINDINGS AND CONCLUSIONS · The domestic automotive industry is in a period of unprecedented financial challenge. The current recession, the intense competition with the Japanese manufacturers, and soaring costs mean that the domestic manufacturers confront serious financial burdens, wholly apart from any burdens associated with changes in fuel economy regulations.
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From page 105... ...
-a - rip -r The domestic automotive industry is in the midst of major transition. If the industr ~ is to remain competitive with the Japanese manufacturers, it must undergo structural change and accommodate itself to new production methods.
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From page 106... ...
Automotive News December23:1. Motor Vehicle Manufacturers Association (MVMA)
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