| Year 2009 witnessed the bankruptcy of the world's | | | | emission threshold and corresponding more restrict fuel |
| biggest automaker, GM, which was just a tip of an | | | | efficiency standard. |
| iceberg. The whole US auto sales plummeted to 10 | | | | As a result, further improving fuel efficiency is imminent. |
| million units, the lowest level since 1982. Apparently, the | | | | In the meanwhile, the exploration of alternative cleaner |
| global financial downturn had huge impact on every | | | | engine energy, like electricity, advanced biofuel and |
| aspect of the US auto sector. Although many people | | | | solar energy should be the top priority of the R&D |
| optimistically project a gradual recovery of the auto | | | | innovation. Large amount of R&D investment in |
| market from the recession in 2010, no one can exactly | | | | new technology as part of fixed costs should be |
| tell how long the market depression may last or any | | | | amortized into the fixed cost in addition to the |
| even worse situation may lie ahead. | | | | expenditures on retooling, new facilities and materials, |
| Upon the "unexpected" heavy blow, every auto giant is | | | | etc. It may sound contradictory to current emergency |
| struggling to survive such a difficult time by taking | | | | actions of lowering fixed costs, especially the fact that |
| emergency actions. For example, GM started to scale | | | | the costs of technological innovation are generally |
| back by cutting its dealers from 6100 to 3600, trimming | | | | uncertain. Taking plug-in hybrid vehicles and battery |
| the US assembly capacity from 2.8 million to 2 million | | | | electric vehicles as examples, the cost premium may |
| vehicles, reducing employment levels, only offering 34 | | | | add as much as 50% to the price of a conventional |
| nameplates in 2010, and so on. Similarly, Toyota also | | | | car. |
| cut employee bonuses, reduced executive pay and | | | | Rapid globalization has generated toughest |
| condensed pay for some factory workers by reducing | | | | competitions ever to US automakers. All domestic |
| hours. Accordingly, they expect to focus on | | | | automakers have to react upon potential new entrants |
| dramatically lowering their fixed costs to achieve the | | | | anytime soon. It is inevitable that the new players will |
| break-even point and the profitability as early as | | | | induce more severe competitions in the US market. As |
| possible. The trade-off of such actions is that the | | | | it took Toyota 50 years to be well-established in the |
| lowered operating leverage would limit the profitability in | | | | US market, maintaining over 16 percentage of US |
| the event of economic recovery and booming in the | | | | market share at present, other new emerging |
| future. It is indisputable to lean auto manufacturing | | | | automakers may not have to spend that much of time. |
| operations at least in short term and this also | | | | BYD Auto, China, Warren Buffett's favorite investment |
| represents the future trend of auto industry reform. | | | | in 2009, opened two sales and marketing outposts for |
| However, besides temporary fixes, one has to | | | | the US operation. It has moved ahead of GM, Nissan, |
| consider some fundamental changes to alleviate the | | | | and Toyota by selling a plug-in electric car with a |
| symptoms of the US auto industry's problem. | | | | backup gasoline engine in other global markets. One |
| Oil price shock of 2008 caused the auto buyers' | | | | may question the quality of their cars and the reliability |
| dramatic shift from once popular gas-guzzlers such as | | | | of their batteries for now, but the undeniable fact is |
| pickups and sport utility vehicles toward the smaller, | | | | that the pursuit of technology innovations is an |
| more fuel-efficient cars. As many countries throughout | | | | exclusive cost-effective way to secure |
| the world, including the United States, entered the | | | | competitiveness. |
| economic recession in the 3Q of 2008, oil prices | | | | When most of domestic automakers emphasize on |
| continued to slide accompanying a significant overall | | | | aggressive cost conservation to stay afloat in the |
| decline in auto sales. Unfortunately, the reduction of the | | | | economic recession, far-sighted automakers should |
| oil demand would not end the oil crisis, while such | | | | stand in a higher ground. Questions, like "other than |
| shortage would persist and possibly even get worse in | | | | closing this facility, can it be adopted to manufacture |
| the near future. Another problem is that the | | | | the new product line in the future", need to be asked |
| acceleration of the global warming triggers more | | | | before making decisions. In addition to investing on |
| environmental concerns regarding carbon emission. | | | | substitutions of fuel engines, further technology |
| Aside from the non-substantial recognition of the | | | | innovation on lowering the variable cost is still |
| Copenhagen Accord, automakers should have been | | | | indispensable to lower the break-even point. |
| aware of the potential significant change of the CO2 | | | | |