World’s Auto Makers Slammed by Financial Crisis in 2008

Special Report

2008 Year in Review

A financial crisis that grew out of the previous year’s troubles in the U.S. subprime mortgage market spread like a toxic cloud, encompassing virtually every major economy in 2008 – even threatening the stability of some gilt-edge financial institutions and wreaking havoc on the world auto industry.

In nearly every market at some point in the year, vehicle manufacturers face a similar problem: A dearth of buyers either holding tight to their cash as a hedge against possible job loss or unable to obtain loans from banks fearful of collapse.

Even government backing of struggling financial institutions in the U.S., Europe and elsewhere could not free bankers’ steely grip on their cash.

Add a third year of skyrocketing summer fuel prices, and the resulting sales decline leads a number of the world’s top auto makers to seek government assistance, with at least two fighting for their corporate lives by year’s end.

One-time auto industry leader General Motors Corp. not only is bested in sales by Japanese rival Toyota Motor Corp. for a second consecutive year, but it only narrowly escapes bankruptcy thanks to a year-end cash infusion from the U.S. Treasury. And that aid is aimed only at keeping GM afloat into 2009, while it tries to reorganize and slim down.

In Germany, GM’s Adam Opel AG subsidiary seeks and receives some government aid, but in Sweden its financially troubled Saab Automobile arm is rebuffed in efforts to obtained relief, prompting GM to begin efforts to spin off the maker of niche cars.

Likewise, Germany’s Daimler AG sees the value of its minority stake in former partner Chrysler LLC dwindle as Chrysler heads for a financial train wreck. Only at the last minute is the auto maker granted a reprieve through U.S. government largess, while it pursues a linkup with Italy’s Fiat Automobile Group.

Ford Motor Co. makes a seemingly fortuitous move in spring 2008, selling its financially ailing Jaguar Cars Ltd. and Land Rover operations to eager buyer Tata Motors Ltd. of India. But, within less than a year, Tata, too, seeks support for those operations from the British government, where they continue to be manufactured

Even Toyota says it expects to post its first fiscal-year operating loss for the 12 months ending March 31, 2009, while Nissan Motor Co. Ltd. is seen posting its first loss in a decade.

Of course, with sales in major markets dwindling, fewer vehicles needed to be built.

World vehicle production in 2008 totaled 69,399,929 units, down 4.1% from the record 72,318,416 built the previous year. Although still the industry’s second-best performance in history, it is one that auto makers will be hard pressed to repeat in 2009, with significant sales declines forecast for major markets.

Nowhere is the impact of the downturn felt keener than in North America, particularly in the U.S. North American production volume declines for a third consecutive year to 12,923,276, some 2.5 million units less than the 15,426,345 vehicles built in 2007 and 26% less than the 16,254,346 built in 2004, the region’s last growth year.

That decline largely is the result of a 24.7% drop in truck output in 2008 compared with 2007, and 32% less than the record 9.9 million-plus turned out in 2004. Behind the lack of demand are worried U.S. consumers who bail out of their once beloved SUVs and pickups in the face of record-high fuel prices approaching $5 per gallon in most parts of the country and exceeding it in others.

The downturn in North American light-truck demand is a major factor in trimming worldwide commercial-vehicle output in 2008 to a 6-year low of 19,375,472 units, down nearly 3.6 million units, or 15.6%, from the record 22,973,825 built in 2007.

The North American share of world vehicle output in 2008 falls to 18.6%, from 21.3% year-ago and 23.2% in 2006. At the height of the truck boom, North American plants turned out 25.5% of the world’s vehicles in 2004.

Within North America, only Mexico, a big supplier of small cars suddenly in demand among U.S. consumers, builds more vehicles in 2008 than it did the prior year, up 3.5%. At the same time, China for the first time overtakes the U.S. in total vehicle production by 9.6%, building nearly twice as many cars as the U.S., but 35% fewer commercial vehicles.

In Western Europe, where $5 gasoline seems a bargain, output falls in every vehicle-producing country as the financial meltdown catches up with markets in the second half of the year. Declines range from 33.8% in low-volume Austria to 20.3% in Italy and 0.6% in Portugal.

In Germany, the continent’s high-volume market, vehicle output slides just 2.7% in 2008, while France posts a 14.9% decline and Spain is off 12.0%. Overall, West European vehicle production is down 9.4% in 2008, compared with a 2.1% gain in 2007, and its share of the world tally falls to 22.1%, from 23.4% in 2007 and 24.1% in 2006.

Eastern and Central Europe is one of three regions in which vehicle output increases in 2008, albeit at less than half prior-year’s rate, 6.9% as against 19.0%. The largest gain in that arena is 20.4% in Poland to a record 944,500 assemblies, while production in Turkey rises 4.3%, to a record 1,147,110 units.

Production of 30,729,218 vehicles in Asia/Pacific, the world’s highest-volume area, represents a meager 1.4% gain from prior-year’s 30,290,383 units. But that is good enough to bolster the region’s share to 44.3%, from 41.9% in 2007. Japan, the top-producing country in 2008, leads with 11,563,629 units, down just 0.3% from 11,596,327 in 2007. Its world output share edges up to 16.7% from 16.0%, a feat it will not likely repeat in 2009.

Also on the list of winners in 2008 is South America, where demand holds up well in Brazil for much of the year, before tailing off in the fourth quarter. As a result, Brazilian factories turn out a record 3,220,475 cars and trucks in 2008, up 8.4% from prior-year, although well below the 13.8% gain seen in 2007.

Combined output in Brazil and Argentina rises 8.6% in 2008. Although that is well under year-ago’s 15.5% gain, it nevertheless equals a 5.5% world production share vs. 4.9% in 2007, with Brazil moving up a notch to No.6 in the world from No.7.

As bad as 2008 is for the industry, with 2009 appearing even bleaker, many of the world’s auto makers likely wish they could replay their 2008 performances.

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