The Impact of the Economic Recession on the US Automotive Market

1. Introduction

In recent years, the economic recession has taken a severe toll on different sectors of the US economy, with the automotive sector being one of the worst hit. The effect of the recession on the automotive sector has been particularly severe in terms of annual auto sales, which have reduced significantly. This has caused dire problems for the large automakers of the country, such as General Motors (GM) and Chrysler, who have filed for bankruptcy, asked for financial bail out, and undergone structural changes in order to be function efficiently. Consequently, the new auto market in the US has shrunk considerably and is expected to continue shrinking in the coming years. In this paper, we will first discuss the effect of the economic recession on the US automotive market and then focus on the shrinking of the new auto market in the US.

2. The effect of the economic recession on the US automotive market

The economic recession that started in 2007 had a severe impact on different sectors of the US economy, with the automotive sector being one of the worst hit (Feroli, 2009). The main reason for this was the drastic reduction in annual auto sales in the country. In 2007, annual auto sales in the US reached a peak of 17 million units but by 2009, they had decreased to 10.4 million units, which was a reduction of almost 40% (Feroli, 2009). This reduction in sales was mainly due to two factors – firstly, people became hesitant to buy new cars because their income levels had decreased and secondly, banks became less willing to lend money for car purchases because they were worried about bad loans (Feroli, 2009). As a result of these factors, large automakers such as GM and Chrysler faced serious financial difficulties and were forced to declare bankruptcy (Bradsher & Bunkley, 2009).

3. The problems faced by the large automakers in the US

The effects of the economic recession were particularly severe for large automakers such as GM and Chrysler who faced serious financial difficulties and were forced to declare bankruptcy (Bradsher & Bunkley, 2009). In order to stay afloat, both these companies asked for government bailouts and underwent radical restructuring (Bradsher & Bunkley, 2009). GM received $50 billion from the government bailout package while Chrysler received $12.5 billion (Bradsher & Bunkley, 2009). In addition to this financial assistance, both companies underwent radical restructuring in order to become more efficient and competitive (Bradsher & Bunkley, 2009). As part of its restructuring process, GM closed down several factories and laid off thousands of workers while Chrysler sold most of its assets to Italian automaker Fiat (Bradsher & Bunkley, 2009). These measures helped both companies to survive during tough times but they also resulted in a significant decline in their market share.

4. The shrinking of the new auto market in the US

The economic recession not only caused problems for large automakers but also resulted in a shrinkage of the new auto market in the US. The total revenue generated by new car sales in the US shrank from $177 billion in 2007 to $151 billion in 2009, which represented a reduction of 22% (Feroli, 2009). This trend is expected to continue in future as well with total revenue from new car sales projected to decline by 1. % by 2014 (Feroli, 2009). The main reason for this decline is the reduction in annual auto sales, which is expected to fall to 10.3 million units by 2014 (Feroli, 2009). This reduction is a result of the continued effects of the economic recession, as people remain hesitant to buy new cars due to concerns about their income levels and the availability of loans (Feroli, 2009).

5. The expected future of the new auto market in the US

The current outlook for the new auto market in the US is quite pessimistic with total revenue from new car sales projected to decline by 1. % by 2014 (Feroli, 2009). However, there are some positive signs on the horizon as well. Firstly, annual auto sales are expected to bottom out at 10.3 million units in 2014 and then start to gradually increase again (Feroli, 2009). Secondly, there are indications that people’s confidence in the economy is slowly returning, which could lead to an increase in new car sales (Feroli, 2009). If these positive trends continue, then it is possible that the new auto market in the US will start to grow again in future.

6. Conclusion

In conclusion, it can be seen that the economic recession has had a severe impact on different sectors of the US economy, with the automotive sector being one of the worst hit. This has resulted in problems for large automakers such as GM and Chrysler, who have declared bankruptcy and undergone radical restructuring. In addition, the recession has also caused a shrinkage of the new auto market in the US. However, there are some positive signs on the horizon as well, such as a gradual increase in annual auto sales. If these positive trends continue, then it is possible that the new auto market in the US will start to grow again in future.

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