How The Economic Downturn has Affected The Auto Salvage Industry

There is absolutely no doubt that the economic downturn has significantly affected the automotive industry in a negative way, Ford, General Motors and Chrysler were the three hardest hit resulting in two of these companies receiving bailouts from the government. Decline in auto sales can be blamed on many factors but the two most culpable are the massive increase in oil prices and the sudden credit crunch that affected nearly every American. Because these companies deal in new vehicles that are significantly more expensive than old or salvage vehicles they lost much of their market to these industries.

Salvage vs. hybrids

Even though new car sales declined significantly during the heights of the downturn in 2008-2009, there still existed the need of the consumer to purchase vehicles. Consumers opted for the smart buys and choose hybrid vehicles instead of those pesky and expensive gas guzzlers. Hybrid vehicles, though cheaper than traditional, new vehicles were still expensive to those hardest hit and thus they turned to salvage vehicles. While there are no exact figures it is estimated that the salvage industry during this time boomed as it left one of the only alternatives to purchasing expensive new autos.

The gift of cash for clunkers?

In an effort to boost new car sales as well as significantly reduce the operation of gas guzzlers on our roads, the government implemented the cash for clunkers program. This significantly helped the auto salvage industry in the short term because it was greatly involved in the pricing and collection and sales of these vehicles. The fact that most of these vehicles were sold to be shredded or crushed meant that this industry was given an expiration date of sorts; and while in the short term a lot of money was made, this program was essentially bad for business in the long term.

Having had to compete with hybrid cars that use less fuel and cash for clunkers the auto salvage industry has still managed to not just stay afloat in the economic downturn but it has also managed to become fairly successful during these times. It is true that hybrid cars and clunkers provide big competition but it is also true that salvage vehicles have always been directed to a niche market and that market never disappoints. The auto salvage industry is not expected to go out of commission any time soon.

How the decline in the Auto Industry Affected Employment Rates

General Motors, Ford and Chrysler (The Big Three) concentrated in the Mid West, USA were once the most dominant forces in the automobile industry. Since the 1970s however, there has been a significant decline in these once powerful automotive companies. The oil crisis was the first of the beginning of a plethora of problems for the US auto industry. This was further perpetuated by rising competition particularly from Japan and the recent economic recession which sent vehicle prices in the US spiraling downwards.

As a result, employment has seen sharp declines. Figures have shown that employment in the industry has declined from one million, three hundred thousand jobs (1,300,000) in 2000 to ten million jobs (10,000,000) in 2005. In addition, an estimated two hundred and sixty thousand (260,000) jobs were lost since 2005. This has had several ripple effects on the US economy.

Oil Crisis

The 1970s saw the beginning of rising oil prices. Consequently, small cars such as the Toyoto Corolla became an attractive alternative to big American vehicles. Although the US car companies tried to design a competitive small car, they failed in doing so.

The rise of Japan and European Manufacturers

The importation of Japanese vehicles into the US soared in the decade that followed the 1970s. Japanese and European manufacturers have been seeing increasing market shares and their vehicles are also viewed as better quality and more reliable than US vehicles. Even US customers have responded to these changes. These foreign brands have steadily led to the decline of ‘The Big Three’ US market share, which has fallen from seventy percent (70%) in 1998 to approximately fifty-three percent (53%) in 2008. This has resulted in huge decline in employment rates. For example, in 2006, the “Big Three” all announced downsizing programmes. General Motors had one hundred thousand (100,000) employees in its prime which was reduced to sixty thousand (60,000) in 2007. Between Ford and General Motors a total of 70,000 jobs were lost.

Economic Recession

The impact of the recession took a heavy toll on the already struggling automobile industry, with a reduction in sales from both local and international clientele alike. Decline in purchasing power of many people and companies caused by the recession, resulted in less output and a shrinking workforce within the automobile industry.

The decline in the automotives industry and loss of jobs played a significant role in the US economy. It is so important that in 2009 the government saw it necessary to intervene in the situation. The intervention bailed out three of the major auto companies as the economic effects of further deterioration of these companies were seen as too great to leave to chance. Currently, the industry has not really improved and only time will tell the fate of the auto industry.