Electric Cars
The demand for electric cars depends on buyers who want environmentally friendly vehicles that are fuel-efficient and high-performing. Governments encourage demand for these cars through legislation that promotes the use of alternative fuel. Countries have agreed to reduce greenhouse gas emissions to comply with the Paris Climate Agreement, as greenhouse gases are one of the factors contributing to global warming.
According to Allied Market Research, the global electric vehicle market was valued at $162 billion in 2019 and is expected to reach $802 billion by 2027. This is due to the efficiency and environmental benefits of electric cars compared to gasoline-powered vehicles. Electric cars emit 54% less carbon dioxide than new gasoline-powered cars. There are currently 1.6 million electric vehicles on the road. By 2030, this number is expected to reach 18.7 million cars. The biggest obstacles facing the electric vehicle market today are the high manufacturing costs, charging times, and battery life. People are also concerned about the lack of charging stations and limited range, but these barriers are likely to decrease as manufacturers achieve economies of scale.
Saving the Auto Industry in 2008
In December 2008, the three major automakers – General Motors, Chrysler, and Ford – requested financial assistance from Congress similar to the bailout of banks. They warned that General Motors and Chrysler were facing bankruptcy and the loss of one million jobs. Ford Motor Company did not need the funds, as it had already cut costs, but it requested to be included to avoid suffering from competition with companies that had already received government support.
The U.S. government’s bailout of the auto industry, totaling $80 billion, lasted from December 2008 to December 2014. The U.S. Treasury used funds from the Troubled Asset Relief Program (TARP). Ultimately, taxpayers lost $9.8 billion.
The Treasury Department provided loans and purchased stakes in General Motors and Chrysler, also providing incentives to boost new car purchases. In fact, the government fully nationalized General Motors and Chrysler, just as it did with Fannie Mae, Freddie Mac, and American International Group.
Many members of Congress opposed the bailout. They argued that automakers had not been competitive for many years. They resisted the production of electric cars. Instead, they focused on profiting from gas-guzzling SUVs and Hummers. When sales dropped in 2006, automakers used 0% financing plans to attract buyers. Union members were paid an average of $70 per hour in 2007.
The Impact of NAFTA on the Auto Industry
President Donald Trump negotiated the new NAFTA Agreement in 2018, which changed NAFTA in six areas, one of the most important being the auto industry.
Under the new agreement, automakers must manufacture at least 75% of the vehicle’s components in Canada, Mexico, or the United States – up from 62.5% in the original agreement. At least 30% of the vehicle must be manufactured by workers earning at least $16 per hour, and this figure will increase to 40% by 2023.
Vehicles that do not meet these requirements will be subject to tariffs. The agreement protects Mexico and Canada from any future tariffs on American cars.
These changes should lead to the creation of more jobs in the U.S. for auto workers, but they may also reduce job opportunities in the U.S. for cars sold in China. Higher labor costs will make cars too expensive for the Chinese market, where labor costs are very low. This means that the prices of vehicles sold in America will increase, and some small cars may stop being sold in North America.
Questions
Frequently Asked Questions (FAQs)
When did the automotive industry leave Detroit?
The automotive industry in Detroit peaked in the mid-1950s. The market share of the Big Three automakers in Detroit fell from over 90% to around 50% by 2008.
What is the value of the automotive industry?
In 2021, American consumers purchased or leased about 15 million new cars. The average price of these transactions was approximately $45,000. Gathering data on used car sales takes longer, but in 2019, the number of used car sales was nearly 41 million vehicles.
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Sources:
– Census Bureau. “Advance Monthly Sales for Retail and Food Services, August 2019,” Page 5.
– AAPC. “STATE OF THE U.S. AUTOMOTIVE INDUSTRY – 2020.”
– Bureau of Economic Analysis, “GDP by Industry, Value Added by Industry, Value Added By Industry (A) (Q).” Annual Industry Data, Lines 21 and 22.
– Bureau of Labor Statistics. “Automotive Industry: Employment, Earnings, and Hours.”
– Bureau of Transportation Statistics. “Annual U.S. Motor Vehicle Production and Domestic Sales.”
– American Auto Council. “2018 Economic Contribution Report,” Page 6.
– Allied Market Research. “Global Electric Vehicle Market Overview.”
– Edison Electric Institute. “Electric Companies Are Leading on Clean Energy.”
– U.S. Department of the Treasury. “Troubled Assets Relief Program (TARP).”
– Wharton School of Business, “The Auto Bailout 10 Years Later: Was It the Right Call?”
– Reuters. “Ford-UAW Deal Cuts Wages to $55 An Hour.”
– International Trade Commission. “U.S.-Mexico-Canada Trade Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors,” Page 18–19.
– Federal Reserve Bank of Chicago. “From Tail Fins to Hybrids: How Detroit Lost Its Dominance of the U.S. Auto Market,” Page 3.
– Bureau of Transportation Statistics. “New and Used Passenger Car and Light Truck Sales and Leases.”
Source: https://www.thebalancemoney.com/economic-impact-of-automotive-industry-4771831
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