The damage of 2008 carried forward to 2009 for the automakers
The end of the 2008 has been the worst year in decades for the auto industry. On Monday they will be putting forward their reports for what is likely to be another month of horrible sales.
The six automaker giants will all be reporting at least a 30% drop in sales during the last month of the year. General Motors and Chrysler are at the bottom of the sales pit. Both these companies have received billions of dollars from the federal government in order to help them from becoming insolvent.
The last time car sales were so bad in the U.S was in 1992. But the real jolt to the auto makers has come from the rapid deterioration of business in the past couple of months. The shrinking credit markets shattered the confidence of consumers resulting in a massive decline in sales for the auto makers.
An automotive analyst in Grand Rapids, Erich Merkle says “This is the kind of automotive recession that, quite frankly, many of us have never been through,” He went further on to say “We know that people who have lost their jobs aren’t in the market for a new car, but even those who have jobs aren’t in the market right now, because they’re concerned if they’ll still have a job in three, six or nine months.”
The chief sales analyst for Ford Motor Company, George Pipas projects the total industry sales for the past year to amount to round about $13.5 million. This amount is three million lesser than what was recorded a year before in 2007. The market has not collapsed by such a big amount since 1947. The analysts have also stated that the sales rate for December will be even worse than the record breaking lows that were recorded in the two months before that.
Mr. Pipas said during a briefing “And since the early ’80s, there are 70 million more people that can drive a vehicle, so this is even worse per capita than 1982.”
Inflated gas prices have also had an effect on automobile sales in terms of volume as well as the time of vehicles that were being sold. Now, when gas prices have declined automotive sales have not experienced any real gain, rather sales for the big six continue to decline.
Toyota experiences loss for the first time in seventy years
The economic turndown has caused the Japanese automobile giant Toyota to experience its first loss in over seventy years of operation. The last decade has seen the company experience rapid growth but it was unable to escape the tide of economic recession which has now affected the company’s operations.
The loss experienced by the company has forced them to put all expansion plans on hold. The main cause for dropping the idea of expansion has been the fact that the demand for Toyota cars has declined in the U.S market which has been one of the key markets of the company.
The president of the company Katsuaki Watanabe said during a press conference “The tough times are hitting us far faster, wider and deeper than expected this is an unprecedented crisis requiring urgent action.”
In recent years the company had produced some amazing fuel efficient cars like the Camry sedan and the Prius gas-electric hybrid. These models had soared in the market and provided a big boost to the company.
The U.S market accounts for almost one third of the sales for Toyota. The fact that there has been a sharp decline in the demand for Toyota cars in the U.S and the rising power of the Yen have contributed to the lowering of sales for the company. The last twenty six months have seen the sales dropping to a record low.
Watanabe said “The change that has hit the world economy is of a critical scale that comes once in 100 years.” The operating loss that will be faced by the company has been estimated at 150 billion yen for the fiscal year that will be ending in March. Last year the same company has reported a profit of 2.27 trillion Yen. Toyota would however be able to reap some profits due to outside dividend income that is estimated at being around 50 billion Yen.
The iconic company has experienced a dramatic change in the face of the economic recession. It had outlined a plan for impressive expansion which the company has had to call off due to the slowing down of the demand for its products.
Bush’s Auto Bailout program attracting praise and criticism
Automakers Chrysler and GM have been thrown a lifeline by the Bush administration. The $17.4 billion promise made by Bush to struggling automakers has won appreciation on one end and has also raised some eyebrows on the other.
The idea has been disliked by the Congressional Republicans who believed that the large sum of money should have been directed towards banks and financial firms. The autoworkers union has however shown appreciation of the bailout program and has accused the Republicans of being harsh on them.
Barack Obama, who is all set to take office in January has appreciated the efforts of the government. However he warned the auto companies not to take the bail out program as a chance to squander money. He urged them to reform bad management and make best use of the lifeline that has been thrown at them during the current financial turmoil.
Once Obama takes office he will have the authority to reopen the arrangement and discuss new terms with the United Auto Workers Union. Obama did not commit any possible changes in the plan.
The Auto industry provides more than three million jobs across the country. The $17 billion loan package has provided struggling companies to get back on their feet and has not only managed to save the companies but also the millions who are employees in the industry.
The auto industry is of vital importance to the economy. This is because it affects almost every sector of the economy and therefore it was integral to help it survive. The loan package was announced to help the companies avoid facing bankruptcy. While the president has announced an overly generous loan he has also issued a warning that if the companies fail to restructure they would have to pay back the loans immediately.
The Republicans are however adamant on their point of view that tapping on the national reserve to bail out struggling auto makers is not a very wise decision. The loan package has also been termed as an abuse of power by the Republicans. They also claim that many adjustments and changes will have to be made because of the big promised loan which the government has not yet taken into account.