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Michael Shenk |

Research Assistant

Michael Shenk

Michael Shenk was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. His work focused on international topics and housing-market indicators.

02.23.09

Economic Trends

The U.S. Auto Industry

Michael Shenk

Much has been made about the difficulties the auto industry has faced this year. Ford, GM, and Chrysler have struggled for some time, but last fall their situations dramatically worsened. After the auto manufacturers pleaded their cases in December, Congress agreed to extend loans to Chrysler and GM in order to help keep the two companies alive.

One big reason they needed the funds, the automakers argued, was the economic downturn and its effect on their sales. With sales data for 2008 available, we can see to some degree what the auto companies were talking about. Total light vehicle sales declined 18.0 percent in 2008, as sales for both cars and light trucks (which include SUVs) declined over the year. That now makes three consecutive years in which light vehicle sales have declined, after declines of roughly 2.5 percent in both 2006 and 2007.

Sales at Ford, GM, and Chrysler (the big three) have been declining steadily since 2000. These three automakers were especially hurt in 2008 when sales declined nearly 25 percent. The three major Japanese automakers have also been affected by the current economic downturn. Their sales declined a combined 12.3 percent in 2008, breaking a trend of steady sales growth.

As sales have declined, Ford, GM, and Chrysler have cut their U.S.-based production in an attempt to adjust to the decreased demand for their vehicles. Production data for 2008 has not yet been released, but it’s a pretty safe bet to assume that production declined during the year, as in recent years.

The major Japanese automakers have, however, been increasing their production in the United States steadily over the past 20-plus years. Including production from other foreign- owned companies. A full 30 percent of automobiles produced in the United States in 2007 were made by companies headquartered outside of the country. These automobiles are not just assembled in the United States, they are also most often built from parts made by U.S. companies. The use of parts manufactured in the U.S. by foreign-based brands has led many people to reconsider what exactly constitutes an “American” car. In some cases, the domestic content of foreign-based models is actually higher than that of their U.S.-based rivals.

Even with the increased production of foreign nameplates on U.S. soil, a significant portion of U.S. light vehicle sales are still imported. In 2008 just over 25 percent of all light vehicles sold in the United States were produced outside of North America. The recent run up in this series isn’t primarily related to an increase in the number of vehicle imported, though that figure has increased in recent years, but more so to a decline in domestic production, as the big three have been restructuring and trying to cut their production capacity.