Global Car Industry Facing Recession

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The Global Car Industry
Facing Recession and a Credit Crisis
Case study
Reference no 309-032-1

This case was written by Nick S Potter, Birmingham Business School, University of Birmingham. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources.

© 2009, Birmingham Business School, University of Birmingham. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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309-032-1

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The Global Car Industry: Facing Recession and
a Credit Crisis
N.S. Potter
“The change that has hit the world economy is of a critical scale that comes once in a hundred years” said Katsuaki Watanabe, announcing Toyota’s first annual loss in its 71 year history. The firm said it expected a loss of 150 billion Yen (£1.1 billion) in yearly operating profits and confirmed that vehicle sales in the U.S. had fallen 37% in December 2008 and that production would halt for a total of 14 days from January to March 2009 in an effort to reduce inventories.

Meanwhile, in America, outgoing President George W. Bush threw the struggling car makers a $17.4 billion lifeline to stave off immediate bankruptcy and Canada became the second G8 economy to bail out its car industry. In the UK, Tata approached the government for up to £1billion to help save Jaguar and Land Rover and announced at the same time that it was sponsoring the Ferrari F1 team in 2009.

The Global Car Industry in 2009 - An Overview.
Car manufacturing has been described as "the industry of all industries". Strong inter dependence therefore exists between the economies of many countries and industry performance. Governments rely on the sector as well as related suppliers and services to a greater or lesser extent in terms of employment, taxation, GDP and balance of payments. Car makers equally, require growing economies with rising levels of disposable income and consumer confidence. The events of 2008 also demonstrated the industry’s reliance on freely available credit to finance the purchase of its products. “Credit availability has been the biggest issue in our industry this year”, according to Mike Jackson, Chief Executive of Auto Nation, the largest car dealer in America.

This case was prepared by N.S. Potter of Birmingham Business School and is intended as a basis for classroom discussion rather than to illustrate correct or incorrect handling of any administrative situations - N.S. Potter, 2009.

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309-032-1
The credit crisis has affected economies globally and reduced activity in a wide range of industries, notably housing and the fall in property values, coupled with the fear of unemployment has reduced consumer confidence around the world. Many analysts now think that car sales will not recover until 2010 and may take until 2013 to return to 2007 levels of 16.1 million vehicles, (CSM Worldwide, Detroit). Governments must balance these economic considerations with environmental issues, as well as the aspirations of consumers in terms of mobility and materialism. Politicians need to find a compromise between these opposing forces and the ways in which they impact on the voting intentions of different groups in their respective electorates. The effects of oil price volatility, the credit crisis and subsequent recession on the environment appear to be mixed. Some environmentalists are concerned that economic issues will dominate the political agenda, while others point out that people are...
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