By now its been widely reported, executives from the three big automakers: Ford, General Motors, and Chrysler traveled to our nation’s capital last week not by way of Amtrak, which would have cost them an economical $198 with a round-trip ticket, but instead boarded their corporate jets to seek a bailout from the struggling auto industry.
Their decision not to exercise a little penny-pinching during these difficult economic times, did not go unnoticed by members of Congress, when executives arrived tin cups in hand to seek a $25 billion bailout.
It came as no surprise, then, they left empty-handed.
But let the record show, the U.S. automobile industry is in miserable shape.
Most recent earning reports show:
• General Motors lost $125 million in the third quarter
• Ford Motor Co. lost $129 million in the third quarter
• Chrysler’s sales tumbled 26 percent this year through October compared with 15 percent for the industry.
The writing is clearly on the wall. The days of the big gas guzzlers’, namely, the SUV’s and light trucks seem to be over.
According to data from Ward’s Automotative Group, Chrysler sold 94,042 light trucks last month, compared with 145,316 in October, 2007; Ford sold 128,976 last month, compared with 145,316 in October, 2007; and General Motors sold 168,785 last month compared with 307, 592 in October, 2007.
Overall, Chrysler’s light truck sales have plunged 26 percent over the last year; GM has dipped by 20.4 percent, while Ford has weathered an 18 percent decline.
Such a precipitous drop in consumer demand for light trucks is significant when you consider in 2003, sales of light trucks represented 54 percent of the U.S. market, up from 46 percent in 1998.
To give you a better sense how important trucks were to the Big Three, just consider they made up 78 percent of DaimlerChrysler’s 2003 unit sales, 68 percent of Ford’s and 59 percent of GM’s.
Despite a rise in gas prices in 2004, SUV’s, vans, and pickup truck’s continued to sell, that is, until 2006, when sales began to tumble
So now we find the Big Three scrambling to fill the needs of a new breed of environmentally conscious consumers’ by manufacturing more fuel-efficient cars like the hybrids, electric and diesel cars.
J.D. Power and Associates, a global marketing information firm, published an Alternative Powertrain Study this year. Some of the findings include:
• Sixty-two percent of new-vehicle shoppers are considering a hybrid-electric vehicle—representing a 50 percent increase from last year
• Approximately 30 percent of consumers believe that auto manufacturers should continue to produce hybrid-electric, clean diesel and flexible fuel vehicles, while an additional 39 percent believe manufacturers should focus on developing emerging technologies not currently available in the market, such as fuel cell and electric vehicles
• In 2008, hybrid vehicle sales are expected to represent 2.5 percent of the light-vehicle market.
Electric cars, research shows, are another alternative form of transportation that consumers are taking seriously.
In 2006, the Electric Drive Transportation Association estimated that there were between 60,000 and 76,000 low-speed electric vehicles on the road in the U.S., up from approximately 56,000 in 2004.
46 states, in fact, now permit some form of traveling on public roads with electric cars; and automobile analysts predict more states will pass legislation in the coming years.
The problem as most U.S. automotive executives will tell you is their companies are so cash-strapped, they don’t have the money to begin manufacturing these green cars as quickly as they had hoped; the new hybrids are expensive to produce and what’s worse, they aren’t likely to show a profit during its initial years. In fact, they’re likely to lose money during its first years.
GM, for example, has already scrapped the Saturn Vue gas-electric hybrid due to dwindling cash flow.
Meanwhile, don’t look now, but Asia is right around the corner, ready to penetrate the market with more energy efficient cars, just one more ominous sign the U.S. auto industry is in for some challenging days if they hope to stay alive.
J.D. Power estimates the Toyota Prius is currently the most popular hybrid vehicle, accounting for 50 percent of all hybrid vehicles sold in 2008; while Plunkett Research Ltd, a provider of industry sector analysis and research, reported Toyota surpassed GM in global sales during 2007 for the first time, making Toyota the world’s largest carmaker.
The base price for the 2008 Toyota Prius is $20,950
In addition to Toyota, Honda, Kia, Hyundai and Nissan offer product lines comprised of more than 50 percent sedans or smaller vehicles.
Low-priced, Chinese-built models, such as the Honda Civic or the Volkswagen Passat, moreover, could cut into U.S. car sales even more, including sales of U.S. vehicles in the global market.
The most up to date research from J.D. Power shows that hybrid sales reached 280,000 in October, 2008, and forecasts 325,000 hybrids to be sold before the year is out. By 2012, the global marketing firm anticipates 1.1 million hybrids will be sold by 2012, while diesel automobiles are estimated to be 400,000 at the end of the year, and by 2012, 894,000 will be sold.
While manufacturing more hybrids is now on the Big Three’s radar in the coming years, they did begin manufacturing more fuel efficient cars some time ago, but their sales fell flat.
Ford, for example, introduced a hybrid version of the Escape in 2004, which got about 31 and 36 MPG. To Ford’s disappointment, however, they only managed to sell 30,000 Escape hybrids between 2004 and 2006. The New York Times reported hybrids comprised less than 1 percent of Ford's sales, compared to about 5 percent of Honda's sales and 6 percent of Toyota's sales in the United States, which led the Detroit automaker to abandon its pledge to sell 250,000 hybrid vehicles by the year 2010, opting instead to concentrate on more ``flexible-fuel vehicles’’
GM , on the other hand, released a hybrid version of its full-size Chevy Silverado truck in 2005
In 2008, 402,191 Silverado’s were sold, ranking as the second most popular light truck in the U.S.
Currently, Ford’s 2008 Escape Hybrid is priced at $25,265 and gets up to 33 MPG in the city, while GM plans to release its first hybrid SUV, the Saturn Vue Green Line, in 2008. It will have a base price of $22,370 and fuel economy levels of 27 MPG in the city and 32 MPG on the highway.
Despite the gloomy data, is the U.S. auto industry still salvageable?
It is, according to Sandra Rothenberg, Associate Professor at Rochester Institute of Technology's Philip E. Saunders College of Business in the Department of Management, who offered the following assessment. ``While it will be a challenge, it is not impossible for at least part of the U.S. automotive industry to make a comeback. ``It will involve, however, a serious recognition of the changing automotive markets and some major restructuring. ``Whether this restructuring happens as a result of bankruptcy or negotiations for government loans remains to be seen.’’
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Top Ten Fuel-Efficient Car Models: 2003-2007
(By Mile per Gallon City/Highway)
1.) Toyota Prius(Hybrid-electric)
60/51
2.) Honda Civic Hybrid
49/51
3.) Toyota Camry Hybrid
40/38
4.) Ford Escape Hybrid FWD
36/31
5.) Toyota Yaris (manual)
34/40
6.) Toyota Yaris (automatic)
34/39
7.) Honda FIT (manual)33/38
33/38
8.) Toyota Corolla (manual)
32/41
9.) Hyundai Accent
(manual), Kia Rio (manual)
32/35
10.) Ford Escape Hybrid 4WD, Mercury Mariner Hybrid 4WD
32/39
Source: U.S. Environmental Protection Agency
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What follows are some footnotes from the latest report from the Manufacturing & Services Office of Aerospace and Automotive Industries (U.S. Dept of Commerce)
• The U.S. market for cars and light trucks decreased to almost 16.1 million units in 2007 –down 2.4 percent
• Most forecasters predict the 2008 market will be the lowest in a decade, with estimates ranging from 15.5 to 16.1 million vehicles sold.
• Market share for the Detroit 3 fell again in 2007 to a new low, 50.9 percent. Sales dropped 7.2 percent
• Domestic employment in the auto industry (light vehicle manufacturing) was down in 2007 to 185,500, a decrease of 7 percent from 2006
• China is now the second largest vehicle market in the world after the United States, now ahead of Japan, which slipped to third place with 4.4 million passenger vehicles sold in 2007.
• Over the last twelve years, the Detroit 3 have lost 22.2 points of U.S. market share, declining from 73.1 percent of the market in 1995 to only 50.9 percent of the U.S. market in 2007.
• Japanese brands have made strong headway during this period, climbing from 22.9 percent to 37.2 percent, a gain of 14.3 points of market share.
• 2007 was the second full production year for Korean manufacturer, Hyundai, in the United States. In 2007, the automaker produced almost 251,000 automobiles, up from 237,000 in 2006.
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Websites to keep in Mind
Fuel Economy
JD Power & Associates
Ward’s Auto
Electric Drive Transportation Association
``The Road Ahead for the U.S. Auto Market'' (From The U.S. Department of Commerce)
-Bill Lucey
billlucey@bellsouth.net