1. Automobile Industry
Introduction
2004 through 2005 will long be remembered as a pivotal period
in the automobile industry. It was a period during which high
gasoline prices started a sea change among U.S. consumers
that will finally create significant demand for fuel-efficient
vehicles. Gasoline prices of $2.00 or so per gallon started
taking a huge bite out of family budgets in 2004, and many
middle-class consumers who owned fuel guzzling SUVs and pickup
trucks began to wish they had vehicles that were much less
expensive to operate. By 2005, with gasoline prices in the
$3.00 range, the party is probably over for traditional, large
SUVs.
For example, one result is that Toyota enjoyed phenomenal
demand for its Prius hybrid car, so much so that many purchasers
were put on waiting lists of six months or longer. Toyota
responded by raising the price of the 2005 model and planning
production increases. Meanwhile, Toyota is making investments
in its Georgetown, Kentucky plant to enable it to manufacture
48,000 hybrid Camrys yearly there by late 2006—Toyota
will likely wish it had created even more hybrid capacity.
Meanwhile, there has been exceptional demand for Toyota’s
Lexus RX400h hybrid crossover.
Other carmakers, including Ford and GM, were greatly encouraged
in their own efforts to bring hybrid vehicles to market, and
Ford launched its first hybrids. Over the mid-term, many hybrids
will be available from a wide variety of makers.
Other fuel-efficient vehicles, such as BMW’s MINI Cooper,
likewise enjoyed soaring demand. Consumers and emissions regulators
started to take a renewed interest in advanced diesel engines,
like those offered in new cars from Volkswagen and Mercedes-Benz,
that offer exceptional performance and fuel economy while
offering the quiet, vibration-free benefits associated with
gasoline engines.
Meanwhile, sales of heavy SUVs lagged miserably, and automakers
such as Chevy, Hummer and Cadillac offered unprecedented dealer
incentives and rebates in an effort to move these vehicles.
Car consumers outside the U.S. made history as well. The
rising affluence of consumers in China created both huge opportunities
and huge problems. China has become one of the world’s
largest importers of petroleum products, largely to fuel its
burgeoning fleet of cars and trucks. Streets and highways
are clogged with new cars, to the extent that traffic is a
nightmare. Some Chinese cities are trying to cut down on new
traffic by requiring car owners to purchase expensive permits.
Meanwhile, automakers from all nations are racing to establish
plants and partnerships in China to produce cars both for
domestic use and for export. In fact, low labor costs and
increasing product quality in China threaten auto plants located
in high cost nations such as the U.S.
Vehicle sales in the booming nation of India are soaring
as well. While motor scooters continue to sell at a rapid
clip, a growing middle class is also creating great demand
for cars. Local industrial giant Tata hopes to launch a no-frills
Indian car at a base price of about $2,200 U.S.
Not to be overlooked are the vast changes taking place in
automobile manufacturing. Flexible factories are reducing
man-hours and costs per car, while offering a much wider range
of choices for customization to consumers. Today, more than
ever, car manufacturers and their suppliers are cooperating
in the design and manufacture of new cars in ways that are
revolutionizing the entire process.
Inexpensive cars manufactured in China will soon be on the
market in the U.S. Meanwhile, U.S. automakers are making
intense demands on their component suppliers for lower prices-those
suppliers are turning to low cost production in China.
Meanwhile, the Big Three face difficult times at best. Ford,
GM and Chrysler are under intense competitive pressure from
foreign-based firms while they endure high labor costs at home.
One estimate shows that GM lost more than $1,200 on every car
it sold during the first six months of 2005. Ford and GM are
both struggling to reengineer all parts of their operations, from
design to manufacturing to marketing in order to cut costs and
regain market share.
While the Big Three struggle, Toyota is attacking mercilessly.
Soon, it will have the capacity to manufacture nearly 1.5 million
vehicles yearly in North America.
The parts manufacturing business is equally dismal in the U.S. Delphi
Corp, the giant parts supplier that was part of GM until 1999, lost
nearly $4.6 billion in 2004 alone.
Below, you will find an analysis of the major trends driving
the automobile industry today.
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