The Big 3 and the Paradigm shift of US Auto Industry

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Logos of The Big 3 - General Motors, Ford and Chrysler
Logos of The Big 3 – General Motors, Ford and Chrysler

The Big 3 – General Motors, Ford and Chrysler have always ruled the roost in the history of the American automotive industry. It began in the 1890’s in the U.S. and grew to become one of the largest industries in the world, with high demand from consumers who considered it as a path-breaking invention in human history.

After World War II, these 3 companies dominated the automotive markets and produced almost three quarters of the automobiles in the world. Trouble began brewing in the 1970’s due to increasing oil prices and competition from foreign counterparts. In 1970, of the 89,244 new cars and trucks sold in the U.S., 84.9% of them were built in North America, while only 15.1% of them were manufactured in other countries and shipped to this continent for purchase and registration.

By 2008 due to the economic meltdown, things reached a point of no return and the industry was in crisis. GM and Chrysler filed for bankruptcy and had to be bailed out by the government. By 2012, of the 14.4 million new cars and trucks sold in the U.S.A. 44.5% of them were built in North America, while imports accounted for 55.6% of registrations.

A total of 15.4 million car and light truck sales are expected in the U.S. for calendar year 2013 — the best year since 2007. By 2014 U.S. sales are expected to reach 16 million, with imports continuing to increase their market share in the U.S. The fall of the Big 3 and the paradigm shift from domestic to imported cars, has strongly impacted the employment status of thousands of the industry’s workforce. From a peak level of 1,004,900 employees in 1978, employment fell to a low of 704,800 in 1982 and is now just above 800,000 employees

Since the first Model T Ford rolled off the Dearborn, MI assembly line, millions of  workers have been employed by American automakers. One-in-ten Americans were employed in the Auto Industry. The companies boasted of employee loyalty like no other, with workers who worked their entire lives with the same company. Fathers who worked at Ford, GM or Chrysler from their childhood until retirement, found their sons and daughters good-paying jobs with their old employers.

During the post-war boom, employment status and individual contribution to the economy was generally good. By late 1973 this began to profoundly change in the United States and in Western nations.

Despite the Arab Oil Embargo, the Big Three had been assured of low petroleum prices by foreign governments and several domestic administrations — hence the big, V-8 powered cars of the era and their consequently-low MPG figures, were still popular with manufacturers and consumers. But once gasoline prices shot upwards in the aftermath of the Arab Oil embargo, Datsun (now Nissan), Toyota and Honda began unprecedented sales surges in North America which continue to this day.

With high quality and lower fuel consumption than their U.S. counterparts, Japanese imports were and are very popular with American consumers. Incidentally, corporate fuel economy averages for foreign and domestic manufacturers  still favour imported vehicles. Not by the wide margin it once did, as GM and Ford have scored impressive MPG victories in certain categories, but differences are still evident when viewed across entire vehicle lines.

The Center for Automotive Research (CAR) in 2008, released a  study on the impact of a major contraction by the Big Three. It predicted:

  • In the first year, the U.S. economy would lose 3 million jobs. It would lose another 2.5 mn in year two and 1.8 mn in year three.
  • U.S. personal income would decline by over $150 billion in the first year and another $250 bn in the next two years.
  • The government would also lose $60 billion in 2009 and almost another $100 bn in the next two years.

CAR’s recent industry outlook, expects automotive vehicle production to fully recover to pre-recession levels in the next two years. But, automotive employment recovery is slowing and may not reach pre-recession levels.

Much of the American conversation these days revolves around the old austerity vs. stimulus debate which reporters and op/ed journalists are required by their respective organizations to cover. Meanwhile, the 80-ton elephant in the room is the trillions of manufacturing dollars which have transferred from the West to Asia since 1970 — and the manufacturing jobs that have gone with them.

GM,Ford & Chrysler play a major role in the Employment of thousands of US citizens. Image : http://i85.photobucket.com
GM,Ford & Chrysler play a major role in the Employment of millions of US citizens. Image courtesy: The Economic Populist

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