Automotive industry crisis of 2008–10

The automotive industry crisis of 2008–2010 was a part of a global financial downturn. The crisis affected European and Asian automobile manufacturers, but it was primarily felt in the American automobile manufacturing industry. The downturn also affected Canada by virtue of the Automotive Products Trade Agreement. [1]

The automotive industry was weakened by a substantial increase in the prices of automotive fuels [Two] linked to the 2003-2008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup trucks which have low fuel economy. [Trio] The popularity and relatively high profit margins of these vehicles had encouraged the American “Big Three” automakers, General Motors, Ford, and Chrysler to make them their primary concentrate. With fewer fuel-efficient models to suggest to consumers, sales began to slide. By 2008, the situation had turned critical as the credit crunch [Four] placed pressure on the prices of raw materials.

Car companies from Asia, Europe, North America, and elsewhere have implemented creative marketing strategies to entice reluctant consumers as most experienced double-digit percentage declines in sales. Major manufacturers, including the Big Three and Toyota suggested substantial discounts across their product lineups. The Big Three faced criticism for their mix of available vehicle types suggested, which faced criticism for being ill-suited to a climate of rising fuel prices. North American consumers turned to smaller, cheaper, more fuel-efficient imports from Japan and Europe. [Five]

Contents

China Edit

In 2008, the Chinese government diminished automotive taxes in order to spur flagging sales. In January 2009, Chinese auto-manufacturer Chery reported unprecedented monthly sales. [6] (See also Automobile industry in China)

India Edit

Citing falling production numbers, the State Bank of India diminished interest rates on automotive loans in February 2009. [7]

For the very first few months of 2009, Tata Motors conducted a widespread marketing campaign heralding the debut of the Tata Nano. Billed as “the people’s car”, the manufacturer hopes the low cost will encourage customers to purchase the vehicle despite the ongoing credit crisis. [8]

Japan Edit

With high gas prices and a powerless US economy in the summer of 2008, Toyota reported a double-digit decline in sales for the month of June, similar to figures reported by the Detroit Big Three. For Toyota, these were attributed mainly to slow sales of its Tundra pickup, as well as shortages of its fuel-efficient vehicles such as the Prius, Corolla and Yaris. In response, the company has announced plans to idle its truck plants, while shifting production at other facilities to manufacture in-demand vehicles. [9] [Ten] [11] [12] On December 22, 2008, Toyota proclaimed that it expected the very first time loss in seventy years in its core vehicle-making business. Loss of $1.7 billion, in its group operating revenue, would be its very first operating loss since one thousand nine hundred thirty eight (Company was founded in 1937). Toyota witnessed its sales drop 33.9 percent and Honda Motor by 31.6 percent. [13]

On five December two thousand eight Honda Motor Company announced that it would be exiting Formula One race with instant effect due to the two thousand eight economic crisis and are looking to sell the team. [14] Honda has predicted that there may be reductions among part-time and contract staff. Upper management bonuses would also be reassessed and directors in the company will take a ten percent pay cut effective January 2009. [15]

Nissan, another leading Japanese car manufacturer, announced that it also would be slashing production and will reduce its output by 80,000 vehicles in the very first few months of 2009. [16]

In December 2008, Suzuki, Japan’s fourth largest car manufacturer, announced that it will cut production in Japan by about 30,000 units due to falling request. The company is expected to face its very first profit drop in eight years for financial year ending in March 2009. [17]

On sixteen December 2008, Fuji Intense Industries, Japan’s largest transport equipment manufacturer and the maker of Subaru brand cars, announced that it would exiting World Rally Championship at the end of the two thousand eight championship, “this unexpected decision was in response to the widespread economic downturn that is affecting the entire automotive industry”, and came one day after competitor Suzuki exited the sport. [Eighteen] [Nineteen]

Reported in Bloomberg on December 23, 2008, that Mitsubishi Motors is to widen production cuts on falling request. The Japanese maker of Outlander sport-utility vehicles, will scrap the night shifts at two domestic factories as the deepening global recession saps auto request. The carmaker will halt the night shift at its Mizushima plant, excluding the minicar line. Nighttime work at the Okazaki factory will stop from February Two. The cuts are part of Mitsubishi’s budge to reduce planned output by 110,000 vehicles in the year ending March because of tumbling sales in Japan, the U.S. and Europe. Japan’s vehicle sales may fall to the lowest in thirty one years in 2009, according to the country’s automobile manufacturers association. Mitsubishi will also halt production of passenger cars on every Friday next month at the Mizushima factory in western Japan. The Okazaki plant in central Japan will close every Saturday in January and for another five days.

Toyota, on December 22, 2008, slashed profit forecasts amid a sales slump. The Japanese automaker, often held up with Honda as a success story for the rest of the auto industry to go after, said it expected a slender profit margin of US$555 million for the year ending in March 2009. Toyota had originally been projecting a massive profit of $13.9 billion for that period. Their sales in the United States were down thirty four per cent and were down thirty four per cent in Europe as well. They expected a loss which would be the equivalent of about $Two billion (CDN).” Toyota President Katsuaki Watanabe said the influence on the company from the fighting global economy has been “swifter, broader and deeper than expected.” “The switch that has hit the world economy is of a critical scale that comes once in a hundred years,” Watanabe said, speaking in Nagoya. [20] Facing its very first loss in almost sixty years, Toyota sought loans from the Japanese government. [21]

On November Four, 2009, Toyota announced its instant withdrawal from Formula One, ending the team’s involvement in the sport after eight seasons. See also 2009–2010 Toyota vehicle recalls.

South Korea Edit

South Korean automakers have been generally much more profitable than their US and Japanese counterparts, recording strong growth even in depressed markets such as the United States. [22] Despite a global economic slowdown, Hyundai-Kia successfully managed to overtake Honda Motor in two thousand eight as the world’s 5th largest automaker, climbing eight rankings in less than a decade. [23] Hyundai-Kia continued its rapid success in 2009, when only a year after overtaking Honda, it surpassed Ford Motor as the world’s 4th largest automaker. [24]

Hyundai-Kia’s continued success was unusual at a time when most automakers witnessed their sales falling sharply, with leading automaker GM even filing for bankruptcy. Hyundai-Kia took significant advantage of the prolonged automotive crisis by producing affordable yet high quality and well designed vehicles. [ citation needed ] Rapid globalization has seen state of the art factories being built in several countries including Slovakia, the United States and China. The manufacturing facilities have been geared-up to build products that are designed and engineered for local markets. The Kia Cee’d is a leading example, being designed, developed and engineered in Germany and built in Slovakia. [25]

Unlike others, this crisis turned into an chance for many South Korean automakers. Korean automaker Hyundai suggested customers who have lost their jobs to comeback a new-car purchase for a refund. [26] The continued growth and success is attributable to the country’s fuel-efficient and well-equipped, yet affordable cars with generous warranties, such as the Kia Picanto, Kia Cee’d and Hyundai i30, which attracted global consumers at a time of severe economic recession, rapidly rising oil prices and enhancing environmental concerns. South Korean automakers therefore had a competitive advantage against expensive luxury vehicles and SUVs from US, Japanese and German automakers.

During the fourth quarter of two thousand eight to the very first quarter of 2009, which was the height of this automotive crisis, the utterly powerless South Korean won, especially against the US dollar and Japanese yen, significantly boosted the price competitiveness of South Korean exports in key markets. Another factor that helped maintain this momentum was an increasingly improving brand awareness, attributable to the introduction of the country’s own luxury vehicles such as the Hyundai Genesis and Hyundai Genesis Coupe, which received very positive awards in the press and reviews. Hyundai’s brand grew by 9% in 2008, surpassing Porsche and Ferrari, while it used the Super Cup football broadcast, the world’s most expensive commercial air time, to promote the Hyundai brand in the United States. [27]

Nonetheless, South Korean automakers were not downright immune to this automotive crisis and in December two thousand eight Hyundai Motor Company had begun reducing production at plants in the U.S., China, Slovakia, India and Turkey because of sluggish request. The company missed an earlier projection of Four.8 million units for two thousand eight and announced a freeze of wages for administrative workers and shortened factory operations as request weakens amid a global financial crisis. [28]

South Korea’s fourth largest automaker, SsangYong Motor, possessed by the Chinese automobile manufacturer SAIC (Shanghai Automotive Industry Corporation), is the worst affected company in this crisis as it manufactures mainly intense petroleum consuming SUVs. The carmaker recorded its fourth straight quarterly losses by the end of two thousand eight with crimson ink of $20.8 million in the third quarter. Also during the July to September period, sales dropped sixty three percent to Three,835 vehicles. Its production lines have been idle since December seventeen as part of efforts to reduce its inventory. The automaker has halted production twice previously this year. In December 2008, SAIC gave an ultimatum to the SsangYong union to accept its restructuring plan or face the parent company’s withdrawal, which, if implemented, would mean certain bankruptcy. [29] A 70% share of SsangYong was acquired by India’s Mahindra & Mahindra Limited in February 2011.

However, the South Korean Ministry of Skill Economy said that there will be no liquidity provision at the government level for five automakers – Hyundai, Kia, GM Daewoo, Samsung Renault and Ssangyong.”We have no plans to inject liquidity into the carmakers,” a ministry official said. “It has been repeatedly made clear.” [29]

In Europe where car sales had also drastically decreased, consideration was being given to financial support for the automotive industry, particularly in France, Germany and Italy. German Foreign Minister Frank-Walter Steinmeier and Jean-Claude Juncker, Luxembourg’s Prime Minister and head of the Eurogroup of single currency nations, discussed the possibility of a common rescue package to be agreed by all the EU member states. [30]

After six years declining, in February two thousand fourteen car registration for a year is increase to 894,730 vehicles and for the latest consecutive six months the sales always increase in line with price cut and economic revival. [31]

France Edit

On November 20, 2008, French automobile manufacturer PSA Peugeot Citroen predicted sales volumes would fall by at least 10% in 2009, following a 17% drop in the current quarter. As a result, it planned to cut Two,700 jobs. [32] On eleven February 2009, PSA announced it would cut 11,000 jobs worldwide. However, none of these are expected to be in France. [33]

Renault announced a net profit for two thousand eight of five hundred ninety nine million euros for the two thousand eight financial year. This was a 78% drop in profits from the two thousand seven financial year. European sales fell 4% and worldwide sales 7%, forcing Renault to abandon their two thousand nine growth targets. [34] This however made Renault one of the few car makers to come back a profit. Renault consistently struggled to come back profits in the 1990s.

France/Germany Edit

On November 24, 2008, French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed to support the crisis-stricken automobile industry in France and Germany. [35] Detailed plans would be announced shortly. [36]

Italy Edit

On December 16, two thousand eight Fiat in Italy announced that it will extend its makeshift plant closures in Italy by a month; the Pomigliano d’Arco, the main plant for its Alfa Romeo cars will be shut for four weeks. [37] However, on February 20, 2009, reacting to deeds by the Italian government to stimulate the automotive sector, Fiat said its plant closures would be curtailed. [38] The company also forecast that sales in Europe will drop by fourteen percent in 2009. [37]

On January 20, two thousand nine the company announced that it had entered into an agreement, subject to regulatory approvals, to acquire 35% of Chrysler. Fiat’s 35% stake in Chrysler would not involve a conventional sale of shares, but would be achieved in comeback for permitting Chrysler to utilise some of Fiat’s fuel efficient technologies (Chrysler’s February subordination to the U.S. government included a commitment to produce nine Fiat-derived vehicles over a four-year period kicking off in 2010, including four hybrid-electric and battery-electric models). [39] Chrysler would be accorded access to Fiat’s sales outlets in Europe, while in reciprocation Fiat will also build up access to Chrysler’s dealership network in the U.S., where it is predicted smaller models such as the Fiat Grande Punto may be successful. [40] In the past, Fiat has had trouble gaining a foothold in the American markets, whilst Chrysler has never held a strong market share in Europe since it sold its UK based Rootes Group and France based Simca to PSA Peugeot Citroen in the 1980s.

On January 22, 2009, Fiat announced a 19% drop in revenues in the last three months of 2008. Italian Prime Minister Silvio Berlusconi said the government would meet to discuss the issue. [41]

Russia Edit

Russia’s automotive industry was hit hard by the Late 2000s recession, which began from United States. Production of passenger cars dropped from 1,470,000 units in two thousand eight to just 597,000 units in 2009. Lorry production fell from 256,000 to 91,000 in the same period. [42]

In late 2008, the Russian government introduced protectionistic measures, worth $Five billion, to improve the situation in the industry. This included $Two billion’s worth of bailouts for troubled companies and $Three billion credits to buyers of Russian cars. [43] Prime minister Vladimir Putin described the stir as vital in order to save jobs. [44] The tariffs for imported foreign cars and trucks were enlargened to a minimum 50% and 100%, respectively. The tariffs are linked to engine size of the vehicle. The enlargened duties led to protests in Russian cities, most notably in Vladivostok, as the import of Japanese cars is an significant sector of the city’s economy. [45]

The most efficient anti-crisis measure executed by the Russian government was the introduction of a car scrappage scheme in March 2010. Under the scheme, buyers of fresh cars can receive a subsidy which is 600,000 rubles ($20,000) at maximum. [46] Sales of Russia’s largest carmaker Avtovaz sales doubled in the 2nd quarter of two thousand ten as a result, and the company returned to profit. [47] [48]

Spain Edit

Spanish automobile manufacturer SEAT (a subsidiary of the Volkswagen Group) cut production at its Martorell plant by 5% on seven October 2008, due to a fall in general sales. This affected seven hundred fifty employees and continued until July 2009. [49] SEAT is still continuing to install solar panels in its Martorell plant near Barcelona. [50]

Sweden Edit

On December 11, 2008, the Swedish government provided its troubled auto makers, Volvo and Saab, with support amounting to SEK twenty eight billion (Trio.Five billion USD). The two companies had requested assistance, faced with the financial difficulties of their U.S. owners Ford and General Motors. The plan consists of a maximum of SEK twenty billion in credit assures, and up to SEK five billion in rescue loans. [51] On eighteen February two thousand nine General Motors warned Saab may fail within ten days, should the Swedish government not intervene. [52] On twenty February, an administrator was appointed to restructure Saab and assist in it becoming independent of its troubled parent General Motors. General Motors have confirmed their intention to sell their Swedish subsidiary, Saab. [53] Of Sweden’s nine million population, 140,000 work in the car industry and they account for 15% of exports. [52]

United Kingdom Edit

In the United Kingdom, Jaguar Land Rover, now wielded by Tata Motors, was seeking a $1.Five billion loan from the government to cope with the credit crisis. [54]

On twenty two December 2008, Tata proclaimed that it would inject “ems of millions” of pounds into the company it had acquired from Ford Motor Corporation in early 2008. British Prime Minister Gordon Brown also stated the intention to help out car industry in U.K. [55]

On eight January 2009, Nissan UK announced it was to shed one thousand two hundred jobs from its Washington, Tyne and Wear factory in North East England. [56] This announcement was made, despite the plant recently being hailed as the most efficient in Europe. [57] [58]

General Motors UK subsidiary Vauxhall Motors, whose brand is the 2nd most popular in the UK [ citation needed ] has two bases in the UK, a factory in Ellesmere Port, Cheshire and their headquarters and design and development centre in Luton, Bedfordshire. It is as yet unknown whether these plants will be affected by the GM cutbacks. The group along with their sister subsidiary, Opel of Germany, was supposed to be sold in their majority to Magna International, an Austro-Canadian company who supply many parts to large car companies, but General Motors cancelled the transaction.

UK bus manufacturer Optare received an order from Arriva in November two thousand eight for the manufacture of fifty three buses in a contract worth over £6million, securing five hundred jobs at the company’s Assembly factory in Cross Gates, Leeds, West Yorkshire and the parts centre in Cumbernauld, North Lanarkshire. [59]

UK Van and commercial vehicle manufacturer LDV Group asked the UK government for a £30 million bridging loan to facilitate a management buyout of the group. On the same day this was refused. [60] LDV has since said it has a viable future and intends to become the very first volume producer of electrified vans should the management buyout take place. Production at LDV’s factory in Birmingham, West Midlands (where it employed eight hundred fifty staff) has been suspended since December two thousand eight due to falling request. [61] Eventually, no buyout materialised and LDV was announced defunct on fifteen October 2009.

Along with several other countries, the UK government launched a scrappage incentive scheme in order to support the crisis stricken industry. Cars registered prior to thirty one July 1999, later extended to twenty nine February 2000, were eligible to be scrap in exchange for a discount of £2000 on a fresh car, half of which was provided by the government and the other half by the dealer. The scheme came to an end on thirty one March 2010.

Canada Edit

The Canadian auto industry is closely linked to the U.S., due to the Automotive Products Trade Agreement and later the North American Free Trade Agreement (NAFTA), and is in similar trouble.

United States Edit

The crisis in the United States is mainly defined by the government rescue of both General Motors and Chrysler. Ford secured a line of credit in case they require a bridging loan in the near future. Car sales declined in the United States, affecting both US based and foreign car manufacturers. The bridging loans led to greater scrutiny of the U.S. automotive industry in addition to criticism of their product range, product quality, high labour wages, job bank programs. The government-backed rescue of the American auto industry gained the support of 37% of Americans in two thousand nine according to a CNN/Opinion Research Corporation poll, and it gained the support of 56% of Americans in two thousand twelve according to a Pew Research Center poll. [62] Chrysler was compelled into bankruptcy in April two thousand nine and GM in May. [63] [64]

While the “Big Three” U.S. market share declined from 70% in one thousand nine hundred ninety eight to 53% in 2008, global volume enhanced particularly in Asia and Europe. [65] The U.S. auto industry was profitable in every year since 1955, except those years following U.S. recessions and involvement in wars. U.S. auto industry profits suffered from 1971-73 during the Vietnam War, during the recession in the late 1970s which impacted auto industry profits from 1981–83, during and after the Gulf War when industry profits declined from 1991–93, and during the Iraq War from 2001–03 and 2006-09. During these periods the companies incurred much legacy debt. [66]

Facing financial losses, the Big Three have idled many factories and drastically diminished employment levels. GM spun off many of its employees in certain divisions into independent companies, including American Axle in one thousand nine hundred ninety four and Delphi in 1999. Ford spun off Visteon in 2000. The spin-offs and other parts makers have collective Detroit’s downturns, as have the U.S.-owned plants in Canada. Altogether the parts makers employ 416,000 people in the U.S. and Canada. General Motors alone is estimated to have lost $51 billion in the three years before the two thousand eight financial crisis began. GM is set to reacquire factories from its Delphi subsidiary during its Chapter eleven restructuring. [67]

The two thousand five Harbour Report estimated that Toyota’s lead in benefits cost advantage amounted to $350 US to $500 US per vehicle over North American manufacturers. The United Auto Workers agreed to a two-tier wage in latest two thousand seven negotiations, something which the Canadian Auto Workers has so far refused. [68] Jared Bernstein, the chief economist of Vice President Joe Biden, noted in an interview with WWJ-AM in Detroit that most of the two thousand seven contract concessions apply only to fresh hires, while older workers “still benefit from contracts that were signed a long time ago.” [Sixty-nine] However, only 30% of parts used by the Big Three employ union labor, with 70% sourced from non-union labor.

Delphi, which was spun off from GM in 1999, filed for Chapter eleven bankruptcy after the UAW refused to cut their wages and GM is expected to be liable for a $7 billion shortfall. [70] [71] [72]

In order to improve profits, the Detroit automakers made agreements with unions to reduce wages while making pension and health care commitments. GM, for example, at one time picked up the entire cost of funding health insurance premiums of its employees, their survivors and GM retirees, as the U.S. did not have a universal health care system. [73] With most of these plans chronically underfunded in the late 1990s, the companies have attempted to provide retirement packages to older workers, and made agreements with the UAW to transfer pension obligations to an independent trust. [74] Nonetheless, non-unionized Japanese automakers, with their junior American workforces (and far fewer American retirees) will proceed to love a cost advantage. [75] [76] [77]

Despite the history of their marques, many long running cars have been discontinued or relegated to fleet sales, [78] [79] [80] as GM, Ford and DaimlerChrysler shifted away resources from midsize and compact cars to lead the “SUV Craze”. Since the late 1990s, over half of their profits have come from light trucks and SUVs, while they often could not break even on compact cars unless the buyer chose options. [81] Ron Harbour, in releasing the Oliver Wyman’s two thousand eight Harbour Report, stated that many puny “econoboxes” of the past acted as loss leaders, but were designed to bring customers to the brand in the hopes they would stay loyal and budge up to more profitable models. The report estimated that an automaker needed to sell ten puny cars to make the same profit as one big vehicle, and that they had to produce puny and mid-size cars profitably to succeed, something that the Detroit three have not yet done. [82] SUV sales peaked in one thousand nine hundred ninety nine but have not returned to that level ever since, due to higher gas prices.

In the case of Chrysler Corporation, compact and mid-sized vehicles such as the Dodge Neon, Dodge Stratus and Chrysler Cirrus were produced profitably during the 1990s concurrently with more profitable larger vehicles. However, following the DaimlerChrysler merger in 1998, there was a major cost-cutting operation at the company. The result was the lowering of benchmarked standards for Chrysler to aim at. This directly led to the following in Chrysler’s case. There was realignment of the Chrysler Group model range with those of GM and Ford (i.e. a skew towards larger vehicles).

The Detroit Big Three had been slower to bring fresh vehicles to the market compared with foreign competitors. The Big Three have battled initial quality perceptions in spite of reports displaying improvements. [83]

Falling sales resulted in the Big Three’s plants operating below capacity. GM’s plants were operating at 85% in November 2005, well below the plants of its Asian competitors, and was only maintained by relying on cash incentives and subsidized leases. [84] Rebates, employee pricing, and 0% financing boosted sales but drained the automaker’s cash reserves. The subprime mortgage crisis and high oil prices of two thousand eight caused the popularity of once best-selling trucks and SUVs to plummet. Automakers were compelled to proceed suggesting strenuous incentives to help clear excess inventory. [85] Due to the declining residual value of their vehicles, Chrysler and GM stopped suggesting leases on most of their vehicles in 2008. [86]

In September 2008, the Big Three asked for $50 billion to pay for health care expenses and avoid bankruptcy and ensuing layoffs, and Congress worked out a $25 billion loan. [87] By December, President Thicket had agreed to an emergency bailout of $17.Four billion to be distributed by the next administration in January and February. [88] In early 2009, the prospect of avoiding bankruptcy by General Motors and Chrysler continued to wane as fresh financial information about the scale of the two thousand eight losses came in. Ultimately, poor management and business practices compelled Chrysler and General Motors into bankruptcy. Chrysler filed for chapter eleven bankruptcy protection on May 1, two thousand nine [89] followed by General Motors a month later. [90]

On June Two, General Motors announced the sale of the Hummer brand of off-road vehicles to Sichuan Tengzhong Powerful Industrial Machinery Company Ltd., a machinery company in western China, a deal which later fell through. [91] [92] [93]

Effects of environmental expectations and switching product request Edit

Environmental politics and related concerns regarding carbon emissions have heightened sensitivity to gas mileage standards and environmental protection worldwide. In a two thousand seven edition of his book An Inconvenient Truth, Al Gore criticized the Big Three. “They keep attempting to sell large, inefficient gas-guzzlers even tho’ fewer and fewer people are buying them.” For example, Japan requires autos to achieve forty five miles per US gallon (Five.Two L/100 km; fifty four mpg‑imp) of gasoline and China requires thirty five mpg‑US (6.7 L/100 km; forty two mpg‑imp). The European Union requires forty seven mpg‑US (Five.0 L/100 km; fifty six mpg‑imp) by 2012. By comparison, U.S. autos are required to achieve only twenty five mpg‑US (9.Four L/100 km; thirty mpg‑imp) presently. Other nations have adopted standards that are enlargening mpg requirements in the future. When California raised its own standards, the auto companies sued. [94] [95]

The Big Three received funding for a $25 billion government loan during October two thousand eight to help them re-tool their factories to meet fresh fuel-efficiency standards of at least thirty five mpg‑US (6.7 L/100 km; forty two mpg‑imp) by 2020. The $25 billion in loans from the Department of Energy to the auto manufacturers were actually authorized by Congress early this year but not funded. Automakers could use these loans to “equip or establish facilities to produce ‘advanced technology vehicles’ that would meet certain emissions and fuel economy standards; component suppliers could borrow funds to retool or build facilities to produce parts for such vehicles.” [96]

Effect of two thousand eight oil price shock and economic crisis Edit

In 2008, a series of bruising blows drove the Big Three to the brink of bankruptcy. The Big Three had in latest years manufactured SUVs and large pickups, which were much more profitable than smaller, fuel-efficient cars. Manufacturers made 15% to 20% profit margin on an SUV, compared to 3% or less on a car. [97] When gasoline prices rose above $Four per gallon in 2008, Americans stopped buying the big vehicles and Big Three sales and profitability plummeted.

The financial crisis played a role, as GM was incapable to obtain credit to buy Chrysler. [ citation needed ] Sales fell further as consumer credit tightened and it became much tighter for people with average or poor credit to obtain a bank loan to buy a car. During 2007, almost two million fresh U.S. cars were purchased with funds from home equity loans. Such funding was considerably less available in 2008. [98] In addition, stock prices fell as shareholders worried about bankruptcy; GM’s shares fell below one thousand nine hundred forty six levels. Furthermore, the instability of the job market and individual consumers’ finances discourages consumers who already have a working vehicle from taking on a fresh loan and payments, which affected almost all major manufacturers.

The annual capacity of the industry is seventeen million cars; sales in two thousand eight dropped to an annual rate of only ten million vehicles made in the U.S. and Canada. All the automakers and their vast supplier network account for Two.3% of the U.S. economic output, down from Trio.1% in two thousand six and as much as 5% in the 1990s. Some 20% of the entire national manufacturing sector is still tied to the automobile industry. The transplants can make a profit when sales are at least twelve million; the Big Three when sales are at least fifteen million. [99]

By December Nineteen, 2008, oil prices had fallen to $33.87 per barrel, but the automobile crisis continued. [100]

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