World comes crashing down

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: Industry sales in the United States have fallen 14.6% this year, including a dismal 31.9% drop in October according to The New York Times. Sales began declining in the spring because of rising gas prices, but have since gotten worse. The sales rate in October was the lowest recorded in 25 years. It reports how the Big 3 — Chrysler, Ford and GM, have endured humbling times before, but nothing like the situation they faced in the fall of 2008, when their chief executives turned to Washington for not one but two bailouts. A measure of their plight could be found in one of the arguments against the second bailout: that even the $25 billion in cash the companies were seeking (on top of $25 billion in loan guarantees already pledged) might not be enough to keep them alive.

Accordingly the first bailout was requested in September, after a summer in which record gas prices had led to consumer flight from the pickup trucks and sports utility vehicles that provided the bulk of the Big Three’s profits. Industry leaders sought and received $25 billion in federal loan guarantees, money designated for speeding the makeover of Detroit’s product line to feature smaller, more efficient vehicles.

The second request came six weeks later, after sales had plunged across the industry in the face of consumer fears and the drying up of credit in the wake of Wall Street’s meltdown. The goal of that bailout was simple survival, as General Motors and Chrysler watched their cash reserves burn toward zero and Ford worried about being pulled under by their collapse.

The global automotive industry has undergone such dynamic changes that it may be split into contrasting yet interlinked performances of the automotive industries of developed countries on one hand and developing countries on the other. As Yashika Singh, Head Economic Analysis, Dun & Bradstreet, India opines, the impact of the global economic meltdown has resulted in a critical slowdown in the automotive industry, with the developed nations suffering a major setback. Moreover, rising cost of production has been eroding the competitiveness of most of the top original equipment manufacturers (OEMs) and auto components manufacturers in major markets.

The automotive industry in emerging nations has been growing steadily due to their low cost manufacturing advantage coupled with developing research and development initiatives. India has been performing at a significant pace with the country’s automobile industry growing at a CAGR of 11.7% during FY03-FY08 and auto components sector growing at a CAGR of 25.1% during the same period.

Among the developing nations, she adds, “The major automotive markets are India, China, Thailand and South Korea. Though Indian automotive industry is poised to perform better as compared to that in most of the developed nations, yet the former is at a concern to maintain competitiveness against other low cost countries (LCCs).

The Indian auto components industry is facing major setback due to slower domestic sales as well as low export demand from the US and Europe, the country’s two major and largest markets.

Though the situation may not tend to improve significantly, yet depreciating rupee against US dollars will result in some respite to the auto exporters.” Echoing similar sentiments Yezdi Nagporewalla, Head Industrial Markets, KPMG, India adds, “As regards the Big3, India is miniscule as a market for their final products. One aspect to watch will be the component space where Indian manufacturers supply to the Tier 1 & 2 suppliers of the Big 3. I expect a larger impact emanating form an overall sentiment and other parameters like credit etc, which will impact demand in India.”

Inputs from NYT