How Big is the Automobile Industry?
What is the size of the automobile industry? According to Wikipedia, it represents approximately 3% of America’s Gross Domestic Product (GDP). In addition, there are roughly 5.8 million vehicles produced in the United States, and $60 billion in exports. Nonetheless, it can be difficult to gauge just how big the automobile industry really is. This article looks at the history of the automobile industry, how many vehicles are produced in the US, and its impact on the economy.
About 3% of America’s GDP
Automakers’ sales are closely related to employment levels and state GDP growth, and the industry’s success could help the state improve its economic standing. The report explores the various elements of the industry as well as important associations beyond the market space of manufacturing. These associations extend beyond automotive parts and technology to include state and local government revenues, U.S. trade, and quality of life. A detailed analysis of a state’s automotive manufacturing sector would be beneficial for further research.
The auto industry is one of the largest in the U.S. and directly employs about 1.7 million people. In addition to employing people directly, it also consumes goods and services from other industries. As a result, the automobile industry spends around $16 billion a year on research and development, and about 3% of the U.S. economy goes to the automotive industry.
With so many potential disruptions to the automotive industry, automotive companies must prepare for these risks and anticipate them. The change in the epidemic’s epicentre has underscored the importance of staying alive and engaged in disaster response planning. It is imperative to consider the impact of the epidemic on the automotive industry across critical fields, such as financial markets, supply chains, and the workforce. This is especially critical in the face of the global economic crisis.
Although the automobile industry makes up about 7% of the country’s GDP, it also relies on internally generated funds to invest in new equipment and tools. As a result, capital expenditure must match depreciation and amortization of assets. Major components and car lines have long life spans, resulting in a slow write-off of assets. Further, the product development strategy of domestic automakers is a major risk factor in determining the industry’s future viability. Moreover, fuel economy standards may render vehicles obsolete before they reach retirement age, putting the production equipment at risk.
Automotive parts manufacturing GDP has a significant impact on employment and state GDP. The decline in new car production is associated with an increase in employment in the automotive industry, but the decline in sales and the growth of GDP are negatively related. For example, the decline of new car sales has a negative impact on employment, while the increase of sales of trucks and SUVs increases jobs. However, a state’s automotive industry’s employment growth is influenced by the profitability of its carmakers.
The automotive manufacturing sector has been on a downward trend over the past decade.
Revenues from the Detroit Three automakers were only 3% higher in chained 2000 dollars in 2008 than they were ten years earlier. The largest revenue earner, GM, reached a high of $184 billion in 2000, but fell to just under half that level by 2008.
5.8 million vehicles produced in the U.S.
Last year, the FCA US automaker produced 5.8 million vehicles in the U.S., accounting for nearly 75 percent of the total sales. The company also employs over six million people in the United States and its suppliers. With such a large workforce, it’s no surprise that production has increased significantly. For the first time since the mid-2000s, FCA’s production has exceeded that of Toyota, Honda, and Hyundai-Kia combined.
While car production has increased, sales have fallen. By February 2009, there were 118 days of supply for cars and trucks. In comparison, GM and Ford had over two million vehicles in inventory, which was nearly five times what they produced in 2007. Toyota’s inventory level was
90 days. In addition, the automakers’ plants in the U.S. worked four days instead of seven, and Hyundai nein and Mercedes were working only four days each.
Since Nissan entered the U.S. market in 1957, it took the Japanese automaker 34 years to reach the 10 million mark, and it fluctuated between one and two million vehicles in a year for 28 years. Today, it is the second-largest automaker in the world, behind Volkswagen. A spokesperson for Toyota noted that the U.S. market in the 1960s, 1970s, and 1980s was much smaller than it has been in the last 30 years. The market in 1980 was 11 million vehicles, and it has now risen to around fifteen to seventeen million units.
Mexico’s auto production has increased since 1995, and its share of light vehicle production in the region has risen from five percent to almost 20 percent over the first two decades of the NAFTA agreement. In 2014, nearly 60 percent of Mexico’s production was sent to the NAFTA neighbors. During this time, Mexico’s production of cars increased, and more vehicles are now being transported longer distances between assembly plants and dealerships.
Honda’s inventory has fallen significantly in recent months because of parts shortages. Last year, the Honda and Acura automakers had about 20,000 vehicles in dealer inventory, and they expect that number to reach 300,000 units by 2020. Hyundai’s sales declined by 34 percent last month, and that was just retail sales. That was the steepest decline since the Pandemic hit.
However, the automakers will have to keep delivering.
The most recent car recall involves a faulty switch. While Ford has recalled 14 million cars because of the defect, the company has been forced to recall another 4.5 million cars. Texas Instruments, which makes the switch, has said that the defect was not the “root cause” of the fires. However, the National Highway Traffic Safety Administration concluded that several factors were involved in the recalled vehicles. In 2009, a child died after his Honda car caught fire.
$60 billion worth of exports from the U.S.
Tariffs have a major impact on the U.S. auto industry. In 2017, retaliatory tariffs cost the U.S. economy more than $60 billion. Canada imposed tariffs of its own on $60 billion worth of auto imports from the U.S., while China lowered its tariffs on approximately $75 billion worth of U.S. goods to 2.5%.
A recent report by the IMF warned that a trade war could destabilize the broadest recovery in years. The Chinese have yet to match the tariffs on $60 billion in American goods, a far lower number than the United States has proposed. One Oxford Economics simulation suggests that a 25% U.S. tariff on $60 billion of Chinese exports would reduce China’s growth by a tenth of a percent this year. However, the impact on the U.S. economy would be much smaller.
New tariffs on Chinese goods may have a significant impact on the U.S. automobile industry. After all, automakers are one of the industries that are most affected by trade tensions. The Trump administration recently announced a 10 percent tariff on $200 billion worth of Chinese imports. The tariffs on Chinese products will go up to 25 percent on Jan. 1. This will affect almost 60 percent of U.S. automobile exports.
The automobile industry is not only profitable, it also contributes to global warming. According to the United States Environmental Protection Agency, automobiles represent 29% of the world’s total greenhouse gas emissions. And as of 2016, they accounted for more than twenty-eight million registered vehicles. The United States is expected to surpass China in 2021 by a mere seven percent margin. These exports have also been one of the highest contributors to the U.S. economy, which is currently the country’s largest exporter and largest contributor to research and development.
The automotive industry in Mexico’s capital city is at the center of NAFTA talks. The two countries will meet Wednesday in Atlanta for a fourth round of talks on the controversial trade deal. The Trans-Pacific Partnership (TPP) will be the largest trade deal in a generation, cutting trade barriers and establishing common standards for more than 40 percent of the world’s economy. While the U.S. has been losing market share to Mexico, the government is hoping to salvage some of the deal to improve the relationship.
After the TPP, the growth of the U.S. auto industry in Mexico has significantly changed the production footprint of the auto industry in the region. Mexico’s auto industry is now America’s sixth largest trading partner. With its newfound competitiveness, the United States will be able to increase its share of the North American automobile market by nearly three-quarters within the first two decades of NAFTA. The agreement also addresses the onerous customs procedures in the region.