American Automotive Industry Woes Will Continue

May 17, 2007
American automakers will have no other choice than to restructure their largely oversized production tool.

A study entitled "The Challenges of the Global Restructuring of the Automotive Industry," issued by Euler Hermes ACI shows that the American product line is out of sync with local demand, causing a loss of market share to Japanese automakers.

In 2007, the market share of the American automakers could drop to 50%, down from 59% in 2004 the report said. The source of their difficulties is not a collapse in new car registrations, but declining market share on their own continent due to an ill-adapted product range. In four years, they will have lost nearly 10 percentage points to the Japanese automakers.

"Before they can offer models that align with demand, the American automakers will have no other choice than to restructure their largely oversized production tool. With volumes sold continuing to slide, 2007 will again be a loss-making year in general. On the American continent, GM hopes to be back in the black in 2008 and Ford in 2009," said Euler Hermes ACI, a credit insurance and accounts receivable insurance company.

In the American automotive industry (car makers and equipment vendors), Euler Hermes is seeing a loss of 300,000 jobs between 2000 and 2006. After a relative return to stability in labor force numbers between 2002 and 2004, the U.S. is seeing a new restructuring plan (2006-2009) that will affect 285,000 jobs.

In addition, the recent rise in gasoline prices marks another challenge for the U.S. automotive industry, said Euler Hermes ACI Risk Industry manager Tony Clary. "As we have seen in the past, an increase in gas prices can have a rapid effect on buying habits, so the long period of stability the OEMs were hoping for to help generate interest in the profitable SUV and truck segments once again is obviously not coming to fruition," he said.

And finally, the weakening national economy is hurting the automakers two-fold: through increased costs of doing business and faltering consumer spending. "A key issue with the automotive industry is that unit labor costs are continuing to rise, but auto makers cannot raise prices because of increased competition," said Euler Hermes ACI Chief economist Daniel C. North. "That means profit margins are being squeezed even tighter than in the past, which is hurting everyone down the supply chain." Also, the U.S. automakers' reliance on consumer spending will cause continued tougher times as the nation's housing market equity -- a major source of fuel for consumer spending in the past -- continues to fall. "A faltering consumer will surely lead to a faltering economy, causing business defaults to rise and credit conditions to deteriorate," North concluded.

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