Essay on Crisis of Automotive Industry

One of the consequences of global financial crisis was the automotive industry crisis which took place in 2008-2010. The countries most severely affected by this crisis were USA and Canada; due to Auto Pact with USA which eliminated trade tariffs for automotive products, Canada’s automotive industry has almost the same dynamics as US automotive industry (Cooney & Yacobucci, 2007). Overall, the industry suffered from energy crisis which started in 2003. In 2008 prices for raw materials have grown, and automobile sales have consequently decreased. Three industry leaders ”“ Ford, Chrysler and General Motors ”“ have previously focused on cars with high fuel consumption and low fuel effectiveness such as SUV cars and trucks. When automotive crisis started, declining sales caused the members of the “Big Three” to close a number of plants and to reduce employment. In 2009, Chrysler and General Motors received government bailouts, while Ford secured a credit line for future loans; Ford Motor Company publicly refused to take advantage of the bailout, and managed to become the only player of US “Big Three” surviving the crisis (Global Economics Crisis Resource Center, 2009).

In Canada, a similar situation was witnessed: $3.3 billion were provided to General Motors and Chrysler, while Ford only secured a credit line (Global Economics Crisis Resource Center, 2009).
Overall, Ford Motor Company has gone through several wage reductions and had to restructure its business goals in order to master the recession; the company has gone through a change of leadership, sold several brands (e.g. Volvo and Jaguar) and focused on more fuel-effective and smaller cars which might effectively compete with Asian cars (Global Economics Crisis Resource Center, 2009).

5. Ford’s Automotive Crisis Management
Ford’s response to the crisis was effective, and combined short-term and long-term measures in an optimal way. It is possible to trace all four steps of crisis management in Ford’s actions during the automotive industry crisis. The company tried to mitigate the risks before the crisis by developing innovative car models such as electric car. The situation with subprime mortgages did not pass unnoticed, and Ford managed to survive the crisis without taking the bailout money, and thus relieving the taxpayers’ burden nationwide. The response to the 38% decline of sales in 2009 compared to 2008 was immediate: Ford managed to adjust resources ”“ labor hours, equipment and property plants ”“ in order to contract existing manufacturing volumes and redirect production (Wilkins & Hill, 2011). Overall, Ford built 30% less vehicles than planned in 2008-2009 period. The company used strong cost cutting measures, reduced its white collar labor by 15%, and restructured its supply chain (DeSanto, 2010).

The goal of Ford during the crisis was to match their production to the existing demand. In addition to this, they have learned a lesson related to their overproduction in the 2006-2008 period, and became more attentive to customer needs. The new direction of Ford is to shift customer demand from SUV and trucks to smaller fuel-efficient cars and crossovers. As a result, the company managed to become profitable in 2010, and added 4,000 hourly jobs and 750 white-collar jobs in the beginning of 2011 (Wilkins & Hill, 2011).