US Auto Industry Teetering on Recovery

January 2, 2011 Updated: January 2, 2011

Robots work on Audi cars at the assembly line of the plant of German luxury car maker Audi in Ingolstadt.  (Oliver Lang/Getty Images )
Robots work on Audi cars at the assembly line of the plant of German luxury car maker Audi in Ingolstadt. (Oliver Lang/Getty Images )
WASHINGTON—If the global auto industry were a country, it would represent the world’s sixth largest economy.

This claim, according to The International Organization of Motor Vehicle Manufacturers, is supported by the global production of 66 million cars, vans, trucks, and buses, and 9 million workers, according to 2005 data.

Globally, the United States ranks third, at 5.7 million vehicles produced, after China’s 13.7 million and Japan’s 7.9 million.

In 2008 when Chrysler LLC and General Motors Corp., two of the Detroit’s Big Three, faced bankruptcy, had the government allowed Chrysler and GM to collapse, the U.S. global market share would have plummeted, and domestic markets dominated by foreign firms.

Already, international firms, mainly Toyota Motor Co., Honda Motor Co., and Hyundai Motor Co., operating in the United States have reached over 50 percent in market share. Back during its heyday in 1945, the U.S. auto manufacturing landscape was 95 percent domestic.

At the end of 2008, when Chrysler and GM faced a dire need for billions of dollars in financing, the U.S. government granted financing under the Troubled Asset Relief Program (TARP), offering an alternative, a government-sponsored Chapter 11 bankruptcy, effectively saving the industry.

Looking back, after just a short period of time, the results of the government bailouts have defied detractors who predicted taxpayer money would be lost. Lawmakers and business executives have lauded the bailout as a success.

Saving an Industry

TARP is widely acknowledged for saving the American auto industry.

Auto manufacturing employs 1 million U.S. workers, second only to computers and electronics, which employs 1.5 million.

Auto manufacturing is also an important job multiplier. The supply of parts to auto manufacturers involve steel, plastic, rubber, and glass industries, and are used to make the bodies, interiors, tires, gaskets, and windows of new cars.

Auto industry also invests substantially in research and development. Responding to calls for improved vehicle safety, performance, and fuel efficiency, the industry invested $16 billion in R&D in 2007 alone.

Between March 2008 and March 2009, the industry shed 410,000 jobs. The U.S. Treasury estimated the loss of 1.1 million jobs, had Chrysler and GM been allowed to collapse.

The government now reports that employment in the sector has stabilized.

In April of last year, GM repaid the remainder of its $6.7 billion in TARP loans, five years ahead of schedule. The remaining U.S. government stake in the company is $2.1 billion in preferred stock and 60.8 percent in common equity.

Chrysler Financial, which received $1.5 billion to support auto financing, has repaid its loans, and Chrysler announced its first operating profit since the beginning of the crisis.

Ford earned $4.7 billion in the first six months of 2010, its largest first-half profit since 1998, and GM earned $2.2 billion. Long-term viability is still threatened by projected low sales volumes.

According to the Center for Automotive Research, experts believe it will take years for the industry to reach pre-recession domestic sales of 15 million, a number believed to be sustainable in the long term. Estimates for 2010 range from 12 to 13.2 million units.

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