A:

Global competition resulted in less market share for U.S. car manufacturers and threatened company profits as more foreign brands entered the U.S. market. The total market share of General Motors fell from 28.2% in 2000 to 17.6% by 2014. The other two of the Big Three car manufacturers also lost U.S. market share during this same period. Ford fell from 24.1% to 14.7%. Fiat-owned Chrysler now holds only 12.7% after having 15.7% of the market in 2000.

High labor costs, product lines that emphasized large vehicles with significant gasoline use and a looming global recession caused a crash in U.S. automaker profitability in 2008. American car manufacturers were struggling to compete against better, more efficiently manufactured products from overseas companies. As of 2015, Toyota earns more than GM, Ford and Chevrolet combined.

Lower per-car costs have allowed foreign manufacturers to gain larger portions of the U.S. market. Decades of market control by U.S. manufacturers caused the major automakers to invest heavily in meeting labor union demands. U.S. auto workers saw higher wages and better benefits, while the profitability of U.S. companies remained largely unfazed by high labor costs.

Demand for American cars remained strong. Sales of American cars were around 16.5 million in 2007. A global recession brought this figure down to 10 million in 2009 and significantly reduced Big Three profitability.

U.S. automakers took drastic measures to cut operating costs. They reduced their workforce by more than 40%, eliminated brands such as Saturn and restructured employee compensation to create more efficient operations. Many U.S.-based factories were closed or moved to states with lower labor costs.

After restructuring during the 2008 recession, U.S. automakers improved profitability and became healthier companies. They began creating more advanced cars, hiring more employees in the United States and abroad, and began to provide returns to investors once again. Increasing foreign competition continues to push U.S. automakers to look for supply chain improvements and market more heavily to American consumers. Company budgets increasingly fund advertising campaigns aimed at U.S. consumers, and automakers continue to develop more advanced product features. Profits per car often remain lower for U.S. automakers, even as costs are cut.

Foreign automakers benefit from favorable currency valuations that create lower sticker prices for consumers than U.S. cars offer. This added incentive may draw U.S. consumer spending away from American cars when the U.S. economy is strong, as the value of the U.S. dollar increases in relation to foreign currencies. Some foreign governments may decide to encourage U.S. purchases of their exports by using currency manipulation strategies. U.S. car manufacturers have gradually become profitable again, but they must continue to lower their operational costs and increase profits to remain competitive in the U.S. market.

RELATED FAQS
  1. How much of an automaker's revenue is derived from service?

    Learn more about what sector of the automotive industry profits from the service and maintenance performed on cars, and how ... Read Answer >>
  2. What warning signs should an investor look for when reading an automaker's sales ...

    Discover the warning signs that investors need to pay attention to in sales reports for automakers. Monthly sales, deliveries ... Read Answer >>
  3. What portion of an automaker's revenue tends to come from auto parts?

    Learn more about the auto parts sector, including how it affects automakers and how it fits into the automotive industry ... Read Answer >>
  4. What is the long-term outlook of the automotive sector?

    Find out about the long-term outlook for the automotive sector and the impact of technologies such as self-driving cars and ... Read Answer >>
  5. Why should an investor add exposure to the automotive sector to his or her portfolio?

    Learn more about what automotive manufacturers offer investors. Explore possible investments in automakers, auto parts manufacturers ... Read Answer >>
  6. What other sectors are most highly correlated with the automotive sector?

    Learn more about industries that are closely related to the automotive industry. Explore investment opportunities and industries ... Read Answer >>
Related Articles
  1. Investing

    Is the Used Car Industry in Trouble?

    Usually, if new car sales go down, it's good news for used cars. Not this time.
  2. Managing Wealth

    Analyzing Auto Stocks

    Find out what to consider before taking a ride with stocks from this industry.
  3. Insights

    6 Countries That Produce the Most Cars

    With over 90 million cars manufactured in 2015, the automobile industry is a massive global market led by six countries.
  4. Tech

    How Google's Self-Driving Car Will Change Everything

    Self-driving vehicles are coming fast, and they’re going to radically change what it’s like to get from point A to point B, not to mention the town or city you live in.
  5. Retirement

    Is It Worth Buying a New Car If You're Already Retired?

    You have to consider more than just the purchase price: Insurance, the warranty, resale value and how much you plan to drive are all important factors.
  6. Personal Finance

    7 Mistakes to Avoid When Buying a Used Car

    Understand the benefits of buying a used car. Learn about seven mistakes to avoid before making a used car purchase.
  7. Personal Finance

    Financial Advice for When You're Buying a Car

    When you buy a new car, make sure you are getting the best deal possible with these tips.
  8. Insights

    US Cities Plan Electric Auto Shopping Spree

    US cities shop for $10 billion worth of electric vehicles in a bid to prove to embattled automakers that there is healthy demand for greener autos.
  9. Personal Finance

    The Financial Risks of Buying "Too Much Car"

    Buyers are financing more than ever for new cars - and paying double the interest for used ones.
RELATED TERMS
  1. Advanced Technology Vehicle Manufacturing Program

    A U.S. Government subsidy created under section 136 of the Energy ...
  2. General Motors (GM) Indicator

    An indicator based on the theory that the performance of U.S. ...
  3. Big Three

    A reference to the three largest automobile manufacturers in ...
  4. Auto Sales

    The major producers of domestic automobiles report sales monthly. ...
  5. Gap Insurance

    A type of auto insurance that car owners can buy to protect themselves ...
  6. Selling Out Of Trust

    A term commonly used in the automobile industry to refer to the ...
Hot Definitions
  1. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  2. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  5. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
  6. Long Run

    A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all ...
Trading Center