Near the end of the year, GM, Ford, and Chrysler, three American automakers, have to admit that the Detroit auto industry is headed for recession. According to the latest quarterly report, the three automobile companies lost a total of US$7.4 billion in the third quarter. General Motors lost the least, totaling $115 million, and its shares fell by 20 cents per share. Ford’s situation in the third quarter was the worst in 14 years, with a total loss of $5.8 billion and a loss of $3.08 per share. Chrysler Group's third quarter revenue fell 26% from the same period last year.
Why was once brilliant Detroit going to recession?
There are many reasons. First of all, the high cost of production has made it difficult for American auto companies to struggle. According to the agreement between auto companies and U.S. trade unions, even if workers are unemployed, companies must pay for them. As a result, U.S. car manufacturers used their workers to mass produce cars and trucks that exceeded market demand, and these surplus cars could only be sold at large discounts, ultimately destroying their brand value. Not only that, but GM, Ford and Chrysler also paid 11.1 billion U.S. dollars last year to provide medical insurance for current employees and retired employees and their families. And many foreign automobile companies, such costs are paid by the government.
Second, the exchange rate imbalance causes U.S. automakers to have an inherent deficiency in combat against Japan. American car dealers believe that the Japanese government artificially reduced the yen to a relatively low level and sought profits for Japanese carmakers such as Toyota and Honda. For American auto companies, Japanese companies have a cost advantage of $2,400 in a car, which allows Japanese companies to expand their markets by offering price cards. Studies have shown that for every one point of the yen exchange rate against the US dollar, each car produced by a Japanese car manufacturer will profit or lose $174. This year, the yen depreciated against the U.S. dollar from 107 to 118, giving Japanese carmakers a profit of 10.5 billion U.S. dollars.
The shrinking of American auto companies' production now leads directly to the chain reaction of the entire auto industry. The two largest US auto parts giants, Delphi and Weston, both entered bankruptcy proceedings.
China's Dongfeng Group and Wanxiang Group are actively participating in the restructuring of Delphi and Westone, hoping to take this opportunity to expand their industrial scale. While American auto companies actively promote the U.S. government’s pressure on Japan’s yen exchange rate, it also allows Chinese auto companies to evade their edge in the process of infiltration into the United States. In this sense, the decline and struggle of Detroit have created opportunities for the development of Chinese auto companies.
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