Why is the Automotive Industry Declining?
There are many factors to blame for the decline of the automotive industry. Neoliberalism, COVID-19, and poor quality production practices are all to blame, but some other factors are more important than others. In this article, we will look at the impact of each of these factors on German and U.S. automakers.
You might also be interested in reading our previous articles on these factors, which we have posted for your information.
Impact of neoliberalism
Despite the criticisms that neoliberalism has lowered wages in the automotive industry, the changes have been seen to be positive in the U.S. and regions where automobile manufacturing is a major industry. Increasing vehicle exports have created more jobs in assembly plants and raised per capita income. Foreign automakers are more focused on environmental friendliness and have set up factories in the Southern Auto Corridor, which is mainly located in the South.
The neoliberal ideology has become increasingly influential in recent decades. The British Labour Party, for example, abandoned its commitment to common ownership of means of production in 1995. The U.S. Democratic Party and other neoliberal governments promoted free-trade policies and the free movement of international capital. In turn, this has led to an erosion of worker and consumer protections. Neoliberalism has had a negative impact on many industries, including the automotive industry.
The impact of neoliberalism on the automobile industry is often argued as a philosophical movement. This movement originated with Friedrich von Hayek in the 1940s. However, it became a political force with the emergence of Margaret Thatcher and Ronald Reagan. These policies are characterized by free-market policies that favor corporations. The market, however, does not always play nice with public services.
After the economic recession, the automobile industry began to decentralize away from Detroit and other industrial cities. While other countries adopted neoliberal principles to a large extent, Detroit manufacturers faced increased international competition.
Japanese and German automobile companies expanded quickly into markets and produced cars at lower prices than their American counterparts. GM and Chrysler suffered financially from the increased competition. In response, some of these companies began to relocate manufacturing to countries with lower labor costs and fewer regulations. Further technological innovation brought new machinery onto assembly lines.
Neoliberalism is a broad political philosophy that focuses on maximizing economic efficiency by transferring control of many economic factors to the private sector. While neoliberalism may increase productivity, it may not be sustainable as space is limited. Moreover, it is also considered anti-democratic and has been associated with a number of social ills. While it is largely beneficial to the United States, it has been disastrous for Detroit.
Impact of COVID-19
In recent weeks, the global automotive industry has been under severe pressure due to an outbreak of COVID-19. Signs include disruptions to China’s automotive parts exports, large-scale interruptions in manufacturing in Europe, and the closure of assembly lines in the US. This pandemic is putting immense pressure on the industry and likely leading to increased merger & acquisition activity. Among other things, it is hampering the industry’s competitiveness.
The automotive industry is the world’s largest industry and is the infrastructure of modern humanity. Without vehicles, most aspects of modern life would come to a halt. The oldest cities in the world would be virtually uninhabitable without them.
The shipping and fulfillment industries would be decades behind without vehicles. Many original equipment manufacturers (OEMs) are driving the industry’s evolution to meet environmental expectations, but changing consumer demands may lead to different outcomes.
While the automotive industry continues to rebuild itself, it still needs time to recover. While chip shortages and national disasters are major factors impacting production, the automotive industry will also suffer as a result. The devastating flooding in Germany, a region reliant on manufacturing, has already negatively impacted production. The cold spell in 2020 has also affected auto manufacturing. COVID-19 has also slowed production in the US.
As COVID-19 continues to disrupt manufacturing in many areas of the world, automotive companies are assessing their operational plans and strategies for the post-COVID-19 world. While COVID was not as devastating as some had predicted, the financial fire has affected the automotive workforce. Many workers took pay cuts, accepted shortened work schedules, and faced layoffs. However, some of these employees are already back on the job.
The economic growth of Europe is likely to remain subdued in the short and medium term. The impact of the Covid-19 crisis on CEE countries and their main trading partners is expected to linger in the automotive sector for some time. In fact, the OECD Economic Outlook projects that demand for cars in Europe will remain below pre-crisis levels until 2021. Therefore, car registration in the EU will remain below the pre-crisis level, while demand for cars will rise in other parts of the world.
Impact of neoliberalism on U.S. automakers
The basic argument of neoliberalism could be summarized on a bumper sticker. Markets work, and governments don’t. This way of life rewards the productive and punishes the unproductive. Milton Friedman, a neoliberal economist, made his name, became famous, and became influential by teasing out the implications of these seemingly simple premises.
Neoliberalism is an ideological war against collective action. It has resulted in the freedom of corporations to pollute. This ideological war has continued over the past 40 years. Reagan and Thatcher led the neoliberal movement into the ascendant. These neoliberal policies have two primary goals: reducing regulation and increasing economic growth. The result has been an environment ravaged by increased pollution.
Before the financial crisis, the U.S. auto industry was dwindling. It had passed its natural peak, and in order to remain competitive, American automakers had to reduce labor costs. The Japanese management culture, meanwhile, is thought to be more innovative and efficient than the American one. At the same time, American labor unions became too greedy, making labor costs unsustainable.
The resilience of neoliberalism may have implications for the life and biopolitics of populations. Biopolitical racism has a counterbalancing effect on neoliberalism and should be considered when analyzing the impact of neoliberalism on U.S. automakers. However, it’s worth arguing that neoliberalism is resilient.
Neoliberalism is responsible for the global financial crisis, but it isn’t the only culprit. It has survived the crisis and thrived. While existing scholarship has concentrated on neoliberalism’s distinctive characteristics, the biopolitical capacity of neoliberalism to generate resilient subjects, this study challenges this approach. Biopolitics has a crucial role in the neo-liberalization of life.
Impact of COVID-19 on German automakers
A recent coronavirus outbreak in the US may delay the transition to electric vehicles in Germany. The country is making billions of euros in investments in electric vehicles, including Volkswagen, which is betting EUR33 billion to flood the market with 75 all-electric models over the next decade. But it may also delay the transition to electric vehicles in Germany itself. And that could have a knock-on effect on car sales.
As the coronavirus pandemic has affected the European economy, the car market in Germany has also experienced a decline. In January and February, the German passenger car market posted year-on-year decreases. As a result, fewer people will be traveling over the summer vacation period. And this could result in a slower pace of production over the summer months. That’s why the German auto industry has been facing financial difficulties for a while, but the recent COVID-19 outbreak has added to the strain.
The global auto industry already faces a number of challenges. It must contend with pollution, the diesel gate emissions scandal, waning demand, higher tariffs caused by the US-China trade war, and the transition to electric and self-driving vehicles. The situation has been particularly severe in Germany, which recently announced tens of thousands of job cuts. COVID-19 is likely to compound these issues, making it more difficult for the industry to recover.
The impact of COVID-19 on the German auto industry is difficult to predict. While the severity of the measures has decreased since the first lockdown, the economic uncertainty and consumer health concerns have caused consumers’ purchase intent to drop by 24 points in May 2020. As a result, many dealerships had to close, and OEMs have cut production volumes by 16 percent from the original 2020 levels. The global auto industry is one of the most affected industries.
Fortunately, Germany has successfully weathered the first wave of the COVID-19 pandemic. The government responded with a EUR130 billion rescue package that aims to halt mass layoffs, insolvencies, and a rise in poverty. By extending low-interest loans to companies, the government has attempted to alleviate the financial impact of the crisis.
The government has also boosted wage subsidies for the furloughed and displaced workers, and extended state aid for large corporations. Overall, however, sentiment among German business leaders is improving, although still pessimistic.