A Tale of Two Industries

Auto Manufacturing: Losses, Bailouts... and Bankruptcy

The battered U.S. auto industry could have been the poster child for everything that went awry with the economy and manufacturing in 2008. Total revenue for motor vehicle manufacturers appearing on this year's IW U.S. 500 list fell to $343.6 billion, a 14% drop from 2007. Poor auto sales trickled down to OEM suppliers, whose total revenue declined 2.6% on the IW 500.

In fact, out of 29 IW 500 categories, auto manufacturers and vehicle parts suppliers were two of only six industrial sectors on the list this year to experience lower revenue. (The others were the housing-related furniture and fixtures and wood products industries, communications equipment, and the tobacco sector.)

While total revenue for IW 500 manufacturers increased in 2008 by nearly 7% from 2007, the downfall of the auto industry dominated news headlines and set the tone for the worst economic downturn since 1982. General Motors Corp. finished the year with a $30.9 billion loss and revenue of $149 billion compared with $181.1 billion in 2007, a drop of nearly 18%.

The falloff knocks GM down one spot from the previous year on the IW 500 list to No. 5 behind General Electric. Ford Motor Co. remains at the No. 6 spot, but the company didn't fare much better with revenue sinking 15.2% to $146.3 billion and a record $14.7 billion loss, compared with a $2.7 billion loss in 2007.

With too many Hummers waiting in line for buyers, GM is expected to phase out production or sell the brand by the end of 2009.

Auto supplier American Axle & Manufacturing Holdings Inc. had the second-greatest drop in rankings on the IW 500, falling 96 spots to No. 351. The Detroit-based company posted a $1.2 billion loss on revenue of $2.1 billion, which plummeted 35% from the previous year.

As 2008 came to a close, the federal government had provided $17.4 billion of bailout funds to Chrysler and GM. By May 1 of this year, Chrysler had filed for Chapter 11 bankruptcy and announced a federal-backed plan to form an alliance with Fiat SpA. At the same time, experts have said a GM bankruptcy is "inevitable."

So, what does the future hold for the U.S. auto industry?

"In some cases, national industries that are a leading sector for a time tend to fall off and don't come back -- like the British auto industry," says John Heitman, a professor of history at the University of Dayton and U.S. auto industry history expert. "I'm not quite that pessimistic on things. In the long run in this country, there will be a great demand for personal vehicles. The question will be: Will it be the type of internal combustion engine that once dominated the industry for 100 years?"

Heitman believes U.S. auto manufacturers will be broken up in into smaller, more nimble units with more distinguishable brands. But, he cautions, U.S. automakers and their suppliers will have to be wary of foreign competitors establishing their ground in the United States while they retool.

"All of this instability is creating opportunity for Asian manufacturers to come in and fill the gaps, and I'm thinking of the coming Chinese industry over the next decade," he says. "That's my concern in all of this as things shake out and we move into the new era. So much of this depends on what is going to be the price of energy over the next five to 10 years, and are these manufacturers going to respond appropriately?"

Energy Industry: Exploring Alternatives

Take a peek at the last 100 or so manufacturers on the 2009 IW 500 and you may notice several new and possibly unfamiliar companies -- such names as SunPower Corp., Woodward Governor Co. and First Solar Inc. Each of the aforementioned companies is involved in manufacturing components or devices used to create alternative energy, and they're all making their first appearances on the IW 500. "I think what you're seeing is that renewable energy as a segment is experiencing very large growth, and that's going to accelerate with funding incentives," says Rick Nicholson, vice president for Energy Insights, an IDC advisory and consulting firm. The demand for new energy sources and development along with President Obama's commitment to renewables has been a boon to companies such as SunPower. The San Jose, Calif.-based manufacturer makes solar cells and panels for residential, commercial and governmental customers. The company nearly doubled its revenue in 2008 to $1.4 billion. First Solar, a solar module manufacturer formed in 1999, increased its revenue by nearly 150% to close 2008 at $1.2 billion. Although First Solar is based in Tempe, Ariz., the company's primary market has been in Germany and other European Union countries where solar power system owners are granted subsidies that improve their return on investment.

U.S. wind turbine manufacturing could explode with a little help from the federal government.

In the company's 2008 annual report, CEO Michael Ahearn said he expects Obama's energy plan to present more opportunities in the United States. "President Obama and Congressional leaders have expressed desire to enact a number of initiatives to accelerate the U.S. transition to a low-carbon energy infrastructure," Ahearn said. "The extent to which the public sector has embraced renewable energy as a means of mitigating climate change, enhancing energy independence and diversity, and stimulating economic growth bodes well for the future of the energy industry."

Woodward Governor produces energy control solutions for aircraft, industrial engines, power equipment and turbine systems -- including wind. The company's revenue rose 21% in 2008 to $1.3 billion, thanks in part to the growing wind turbine market. "In the face of uncertain fossil fuel prices and the increased demand for clean energy, the wind turbine market has continued to grow at a remarkable rate," said Chairman and CEO Thomas Gendron in the company's 2008 annual report. The company added a major Chinese wind turbine manufacturer in 2008, which contributed to its wind turbine inverter sales doubling, he said. Woodward also plans to build wind turbine inverters in Colorado.

Keeping in mind that it could be years before alternative energy is affordable enough and readily available for mass consumption, traditional fuel-related producers also moved up the chart. This includes Plains Exploration & Production Co., which climbed 141 spots to No. 322 and Olin Corp., moving up 71 spots to No. 390.