The recent economic recession has affected both consumers and producers across the world. Output in some exporting economies decreased by upwards of 40% (such as in Japan) whilst unemployment has increased in some instances beyond the 10% band (such as in the US). Large consumer goods have been affected disproportionately as consumers hedge their bets in relation to expensive purchases. This has seen sales in the automotive sector decrease substantially in the financial year 2008/09. In order to alleviate this slump national governments have intervened within the market in an attempt to boost demand. Government backed initiatives such as the scrappage scheme have allowed consumers to receive a cash deduction on the purchase of a new vehicle when trading in their old car (if that car is over 10 years old in the instance of the UK). In the UK £300m was initially allocated to this scheme and has been further extended by another £100m due to popularity.
Within the US automotive industry there is considerations for all of the concerns outlined above. Manufacturing output is a key part of the overall US economy especially in the large consumer goods section. This industry also directly employs a large proportion of the workforce (over 1 million automotive workers in 2005) and has strong indirect employment links to related sectors. This creates the situation where the industry has an important place within national policy and political consideration. Furthermore, the industry also possesses important cultural and symbolic meaning for many US citizens who see their automotive firms as champions of US economic power, ingenuity and integrity.
General Motors, which until recently was the largest automotive firm in the world, held a leading role in US manufacturing. Over the last decade the company has experienced a prolonged slump in its corporate performance being constantly bested on key issues (such as vehicle performance, economy, style etc.) by foreign competition (mostly from Japan). The onset of the recession proved a severe test for the US automotive industry which was trying to juggle restructuring their manufacturing, refinancing their large pension commitments and redesigning their car development in order to regain a competitive advantage. This added curve ball was simply too much for the giant GM to handle and the company quickly descended into a corporate meltdown. The US government decided it was in the nation’s interest for them to step into the market and take a controlling stake (60%) in GM to eliminate the possibility of the firm going bankrupt.
It is without question that the primary objectives of the US government in taking this stake in GM were to protect jobs and the US manufacturing sector. This has been achieved by giving the firm the backing and credibility of the US government both in a financial but also reliability context. Undoubtedly the harm that would have been created to America if GM was to have become bankrupt is of a far higher magnitude to the costs (again financial and metaphorical) of the US government’s intervention.
This situation presents the US government with a unique position not often held by any US administration in the past. They have a direct (and commanding) say in the operation of a large US corporation. This position can be harnessed by the current administration to reposition GM both on a path of improved corporate performance but also to influence its corporate direction to most benefit the needs of society. There is an argument to be made that the US administration could utilise its position of influence to re-orientate GM onto a more environmentally sustainable path in its vehicle development. It would prove beneficial, not only for the environment but also for GM’s bottom line, for the company to begin design and production of more fuel efficient smaller cars. The SUV craze in America appears to be over with sales of the goliaths plummeting over the last year. Conversely sales of hybrid vehicles are expanding rapidly.
The US administration is attempting to pass a legislation to install a legally binding emissions reduction target of 17% (of 2005 levels) by 2020. If this is to pass into law then clear carbon pathways will have to be developed in order to reach the objective. This means a strategy for personal transport which contributes 27.2% (with 21.6% coming from road vehicles) is essential to the success of any overall policy. In this regard the US administration has an unprecedented opportunity to encourage GM to restructure and rebrand itself as an environmentally conscious firm that produces vehicles with high levels of environmental performance. Whether or not the US government will want to take such a strong position in an important market or remains to be seen however I for one will be disappointed if they do not decide to use this chance to help decouple the transport sector from a high carbon trajectory.
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