The Global Automobile Industry

1. The steep sales decline that hit automobile companies worldwide in 2008 and 2009 started with problems in the United States housing market. What does this tell you about the nature of the global economy in the first decade of the twenty first century?

Answer: The economy today is indeed a global one in that events in one market influence events in another market. The rapid collapse of the global economy in late 2008 and early 2009 clearly illustrates that a crisis is one market can no longer be isolated within that market, and instead spills over very quickly into other markets. While the original crisis in the United States began in the housing market, other sectors of the economy were quickly affected. This ripple effect again demonstrated the interdependency of markets within and across national borders. In addition, the new global interdependency in the marketplace can lead to shifting power structures between countries and within industries. For example, the power of the Big Three auto companies has deteriorated, particularly in the last couple of years, and new competitors like India’s Tata Motors and China’s Geely have emerged.

2. Despite a global recession in 2008 and 2009, demand for automobiles continued to grow in countries like China and India. What are the implications of this for the future of the global automobile industry? How should established automobile companies respond to this development? What should their strategies be?

Answer: The recession of late 2008 and early 2009 brought auto sales in the United States to a virtual standstill. Companies that relied heavily on the market like the Detroit Three as well as Japanese competitors like Toyota, Honda, and Nissan watched their sales dry up almost overnight. However, for companies in other parts of the world, and especially in China and