THE ECONOMIC IMPORTANCE OF THE U.S. AUTOMOTIVE INDUSTRY OR THE “BIG 3”

By Mark Preston

1796 – French Engineer, Nicholas Cognot – first steam-powered carriage or road vehicle

1860- Belgian, Jean Joseph Lenoir used first Internal Combustion Engine (ICE) in road vehicle

1891 – Thomas Edison inspired William Morrison to test electric road vehicle in Des Moines

The Forming of a New Industry coupled with engineers, innovators, and investors from Copper, RR, etc. industries formed the companies we know today.

IMPORTANT QUOTES OF CAR & INDUSTRY

Bentley Historical Library website: the invention of the automobile has “impacted society like nothing else”

“the automobile’s impact on the economy was not only due to the amount of capital and number of workers involved in its manufacturing, but also to service occupations that it spawned” – Michigan: A History of the Wolverine State “America’s love affair with the automobile” phrase appeared in the American Heritage dictionary, as a usage example under the entry for “love affair.” - Bureau of Labor Statistics, Rick Wallick

“continuing growth in auto output could greatly assist future growth in the overall economy” – Center for Automotive Research (CAR)

In 1897, Ransom E. Olds of Lansing was granted a patent with the objective to “build a lightweight, easily operated vehicle with enough power to satisfy the average driver’s needs” leading to introduction of the “runabout”

THE “BIG THREE” OF THE U.S

1876 - On a carriage ride into Detroit with his father, Henry Ford saw a self-propelled steam threshing machine. This encounter is what Ford felt "helped to shape the course of his life"

1899 - Henry Ford formed Detroit Automobile Co and closed after a year

1903 - Henry Ford formed Ford Motor Co. in Detroit

1906 - Ford popularized Model T and the moving assembly line

1909 - Henry Ford’s almost merged with GM

1897- Olds Motor Works – Ransom E. Olds

1902 – Henry M. Leland of Cadillac Automobile Co.

1903 – David D. Buick formed Buick Motor Co.

1908 to 1917 – General Motors Corp formed by William Durant in New Jersey to avoid trust-busting merging with Buick, Olds, Pontiac, Cadillac, then Chevrolet

1914 Chrysler Co found by– Walter P. Chrysler with John and Horace Dodge

Leading to 2009 industry bailout

2001 Sub-Prime Mortgage Lending

2002 Sarbannes-Oxley Act 2004 Credit Default Swaps 2008-2009 – The Great

Recession 2009 Summer a dire time for ALL U.S. Auto Makers and Suppliers

U.S. and Canadian Governments bailout totals $80 billion –CAR

GM and Chrysler (not Ford)

Economic Analysis - Employment

Industry Employment Experienced near 40%

unemployment Over 400 thousand lost jobs

On a comeback from massive layoffs

CAR reports that the industry will add 90,000 jobs through the year 2016

More efficient than before

2004 2005 2006 2007 2008 2009 2010 2011 -

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Employees in industry of motor vehicles, bodies and trailers, and

parts manufacturing

Early History Fact: 1900 Olds employed 100

workers in Detroit

Economic Analysis - Earnings

Industry Earnings 2013 – 26% higher average wage for

industry of Manufacturing of Motor Vehicles $30.38 per hour vs. All Manufacturing $24.04 per hour -BLS

“Monopoly Rents” – Rick Wallick

Avg Hourly Wage $-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00 $30.38

$24.04

Motor VehicleAll Manufacturing

Early History Fact: 1914 – Henry Ford increased

pay to workers from $2.50 to $5.00 per day.

Economic Analysis – Supply & Demand

Industry Supply and Demand 2006 – 122 vehicle models 2011 – 85 vehicle models 2012 – 133 vehicle models

Vehicle Models0

50

100

150122

85

133

Vehicle Models

2006 2011 2012

Early History Fact: Model Ts were available in

“any color as long as it was black”

Economic Analysis - GDP

Gross Domestic Product 2007 – 3.3% of National GDP 2009 – 1.7% of GDP 2011 – more than 3%

Net exports at $20 billion

2004 2005 2006 2007 2008 2009 2010 20110

100

200

300

400

500

600

Gross Output of motor vehicles, bod-ies and trailers, and parts employees

($billions)

Early History Facts: In 1905 Olds produced 6,500 runabouts By 1909 autos and parts value of $400

million or 36.7% of Michigan’s manufacturing output

In 1911 Ford made more than 20% of all cars in U.S.

In 1923 Ford produced more than 2 million Model Ts

In 1927 Ford produced more than 15 million Model Ts

Economic Analysis - Prices

Product Prices Average price near $30,000 for new light

vehicle 2011 – 9.6 million units forecast to sell

-New York Times

Supply-Chain

2/3 0f the 90k jobs expected by 2016 in supply-chain

Supplier to Motor Vehicle employment Ratio 3:1 to 2:1

Benefits to the Economy Job Providers 3% of GDP Global Demand (emerging market in China) Good Products Corporations now realize benefits to

sustaining the environment

Challenges Ahead Working together on process improvements

and product innovation Continued efforts in R&D to improve fuel and

efficiency Supply-Chain Management – Auto Industry

challenges: Volatile Market Uncertain Gas Prices Green Energy implications Social & Ethical Responsibility

-Management Decision Energy Policy Act of 1992 - reduce U.S.

dependency on imported petroleum for gasoline production, help reduce harmful green-house gases, and improve overall air quality which prompted further R&D into alternative fuels with awareness to environmental sustainability

Fuel Infrastructure for the “right” fuel (EV, Hydrogen, Ethanol, Natural Gas, and/or Bio Diesel) – U.S. Dept. of Energy

Conclusion

Works CitedAutomotive History. (2007, July 5). Retrieved March 25, 2013, from Bentley Historical Library University of Michigan: http://bentley.umich.edu/research/guides/automotive/

Bureau of Economic Analysis. (2012, November 2013). Retrieved March 31, 2013, from U.S. Department of Commerce: http://www.bea.gov/iTable/iTable.cfm?ReqID=5&step=1#reqid=5&step=4&isuri=1&402=45&403=1

Bureau of Economic Analysis (Gross Output). (2013, 12 November). Retrieved April 2, 2013, from U.S. Department of Commerce: http://www.bea.gov/iTable/iTable.cfm?ReqID=5&step=1#reqid=5&step=4&isuri=1&402=15&403=1

Amadeo, K. (2013). US Economy. Retrieved April 5, 2013, from www.useconomy.about.com: http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm

Cable, J. (2012, September 11). Industry Week Supply Chain. Retrieved April 20, 2013, from www.industryweek.com: http://www.industryweek.com/supply-chain/auto-industry-s-next-bottleneck

Dunbar, W. F., & May, G. S. (1995). Michigan A History of the Wolverine State. Grand Rapids, MI: Wm. B. Eerdmans Publishing Co.

Schiller, B. R., Hill, C., & Wall, S. (2011). The Macro Economy Today. In The Macro Economy Today (pp. 121-123). New York: McGraw Hill.

Sean P. McAlinden, Y. C. (2012, December). CAR Center for Automotive Research. Retrieved April 1, 2013, from cargroup.org: http://www.cargroup.org/?module=Publications&event=View&pubID=98

Sean P. McAlinden, Y. C. (2012, December). Center for Automotive Research. Retrieved April 1, 2013, from cargroup.org: http://www.cargroup.org/?module=Publications&event=View&pubID=98

Statisitcs, B. o. (2013, January). Current Employment Statistics. Retrieved April 2, 2013, from Bureau of Labor Statisitcs,: http://www.bls.gov/web/empsit/ceseeb3a.htm

Vlasic, B. (2011, May 20). The New York Times Business Day. Retrieved April 20, 2013, from www.nytimes.com: http://www.nytimes.com/2011/05/21/business/21auto.html?_r=1&

Wallick, R. (2011). Auto Industry Labor Costs in Perspective. Retrieved February 4, 2013, from Bureau of Labor Statistics: http://www.bls.gov/opub/cwc/cm20110419ar01p1.htm

Yu Xia, T. L.-P. (2011). Sustainability in Supply Chain Management: Suggestions for the Auto Industry. Management Decision, 495-512.