perspectives on the auto industry · 2018-12-09 · perspectives on the auto industry 7th annual...
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Perspectives on the Auto Industry
7th Annual State of the Region ConferenceCenter for Regional Development at BGSUPerrysburg, OhioJanuary 28, 2009
Thomas KlierSenior EconomistFederal Reserve Bank of Chicago [email protected]
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Challenging times - Recap
“We have plenty of customers – what we don’t have is financing available to meet their needs” Mike Jackson, The Economist, Oct. 04
“One of Big 3 may not survive”Daniel Howes, Detroit News, Oct. 14
“GM loses $2.5 billion in 3rd quarter; cash reserves getting critically low”
Detroit News, Nov. 7
“Bailout now or collapse” Automotive News, Nov. 10
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Challenging times - Recap
After 2 rounds of hearings and no agree-ment in the Senate, Bush administration approves $17.4bn in federal aid for GM and Chrysler on December 17.
Subsequently GMAC receives $6bn and Chrysler Financial $1.5bn in TARP funding
“Car parts sector looks for $10bn federal bail-out”
Financial Times, Jan. 26, 2009
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Perspectives on the auto industry
The cycle is back
Legacy of structural changes
Looking ahead
Outline:
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The cycle is back!
Down 18% in ‘08
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Consumer confidence and sales heading south
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Deep Production cutbacks idle plants
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Perspectives on the auto industry
The cycle is back
Legacy of structural changes
Looking ahead
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Industry was changing well before downturn
Industry employment down by 26% between 2000 and ’07
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Drivers of structural change
Internationalization of sales and production (of vehicles and parts)
Greater role of supply base
Changing industry geography
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Herbie led the wayVW was dominant import brand in U.S. market during the 60s and early 70s.
Asia has been primary source of imports since mid-70s.
1960s 8 %
1970s 17 %
1980s 25 %
1990s 16 %
2000s 20 %
Import share of sales by decade
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From 4 to 13 carmakers in 30 years
VW (1) 1978
Honda 1982
Nissan 1983
Toyota 1984
Mitsubishi 1987
Subaru 1989
BMW 1994
Mercedes 1997
Hyundai 2005
Kia 2009
Foreign carmakers, by first year of producing in U.S.
(1) Closed in 1989, new plant to open in 2010
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Market share shift accelerates in mid-90s
Big Three US market share
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1960
1963
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perc
ent
Note: 1960-1979 share of car sales, 1980-2007 share of light vehicle sales
40
50
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perc
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Big Three US market share
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Now there are (the Big) Six
Company Market share (%)
GM 22.4
Toyota 16.9
Ford 14.8
Chrysler 11.0
Honda 10.8
Nissan 7.3
Six leading carmakers in U.S. light vehicle market, 2008
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N.A. supplier base more international
1994 2007
US 108 59
Europe 20 39
Asia 14 41
other 8 11
Largest 150 motor vehicle parts suppliers to North America by nationality
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Today’s Supply chains are truly global
US motor vehicle parts imports (%)
0%
5%
10%
15%
20%
25%
30%
35%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
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Different parts from different sources
Mex
ico
C
anad
a
J
apan
Res
t of W
orld
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Powertrain Electrical Chassis Body Interior Other
MexicoCanadaJapanRest of World
US motor vehicle parts imports ($)
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Enhanced role for supply base
Nearly 80% of industry jobs
70% of a car’s value added
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Everything you always wanted to know about the motor vehicle parts industry (but were afraid to ask)
www.upjohninst.org
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Geography of the auto industry
Thomas Klier, Federal Reserve Bank of Chicago; Source: Maptitude, ELM, Company websites
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Assembly line density in 1980
Thomas Klier, FRB Chicago
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Assembly line density in 1990
Thomas Klier, FRB Chicago
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Assembly line density in 2000
Thomas Klier, FRB Chicago
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Assembly line density in 2008+
Thomas Klier, FRB Chicago
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The tyranny of geography
Thomas Klier, FRB Chicago Thomas Klier, FRB Chicago
2008+Domestic Foreign
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Domestic carmakers retreat to Midwest
Thomas Klier, FRB Chicago Thomas Klier, FRB Chicago
1980 2008+
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Detroit 3 will be more concentrated
0.25
0.27
0.29
0.31
0.33
0.35
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0.39
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0.45
1960
1962
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Michigan’s share of U.S. assembly plants
Chart reflects announced plant closures and openings as of December 2008
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Parts: suppliers cluster in auto alley
Thomas Klier, Federal Reserve Bank of Chicago
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A north-south auto corridor emergesBefore 1980 Since 1980
Thomas Klier, FRB Chicago Thomas Klier, FRB Chicago
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Foreign parts plants gravitate southSince 1980
Thomas Klier, Federal Reserve Bank of Chicago
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Auto supplier networks are regionalToyota, Kentucky, supplier network
Thomas Klier, Federal Reserve Bank of Chicago
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The supply base links all carmakers
On average a supplier plant ships to four different customers.Only 12% of North American supplier plants supply exclusively to foreign headquartered carmakers producing in North America.Supplier networks are linked across carmakers:
Also supplying to:
D3 Asians Europeans
Suppliers to D3 100% 42% 15%
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Perspectives on the auto industry
The cycle is back
Legacy of structural changes
Looking ahead
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Bailout timeline
Car Czar to be appointed by Obama administration.
February 17: Carmakers present business models to show financial viability. GM to receive additional $4bn contingent on con-gressional approval.
March 31: Carmakers need to reach agree-ments with workforce, creditors, dealers, and other stakeholders to meet terms of business models.
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Stricter Fuel efficiency regulations ahead
15
20
25
30
35
40
1978 1986 1994 2002 2010 2018
Passenger Cars Light Trucks New Standards (Combined)
CAFÉ standards
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Gasoline peaked in July. What’s next?
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What product mix will sell?
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PRIUSTUNDRAgasoline price
Sales of Prius and Tundra vs the price of gasoline
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Summary – tough times for auto
The business cycle is back – with a vengeance.
Currently all major auto markets are slowing down, challenging both OEMs as well as parts suppliers.
Domestic carmakers fighting for survival. Possibility of domino-effects working through supply base.
Auto industry turmoil has regional implications.