How the U.S. Auto Industry Got into a Big Mess

The automakers that were once the pride of Detroit and America are now floundering. As gas prices rise, the sale of SUVs and other gas-guzzling vehicles have sharply declined. The top U.S. automakers that once dominated the industry, Ford, GM, and Chrysler, are now closing factories, laying off workers, and desperately trying to cut costs. The stocks of these companies have taken a serious hit recently as well. So how did these three automakers fall from grace? We’ll explain their tortuous path to financial trouble in what follows.

How Did They Get Here?

The crisis automakers are facing can be blamed on several factors. For one, the companies just didn’t anticipate that the price of oil would rise like it did. This indelibly changed the face of the automobile industry. Secondly, the manufacturers were simply just resistant to change. In contrast to their more flexible Japanese rivals, American auto manufacturers require a water-tight case to even consider the production of a new vehicle. They have also fought passionately against more stringent fuel-efficiency mandates by the government. Finally, the U.S. automakers were crippled by their myopic view of the future. Whereas Toyota began developing a car for the 21st century in the 1990s (what eventually became the Prius), American auto manufacturers were content building monstrosity SUVs and trucks to cater to a very short-term spike in demand.

Will They Survive

Without question, automakers are in trouble. The real issue is whether they will be able to recover. GM, for one, remains hopeful about the future. They have staked a large part of their future on the Chevy Volt, a plug-in electrical hybrid that will be the first mass-market production of its kind. Leaders at GM concede that business as usual no longer is working, and they need to focus on new technologies to stay ahead of the game. They understand that natural resources are finite, so new technology will be the future of their business and the industry.

About the Volt

It’s no secret that automakers got into this mess because of consumers’ sudden aversion to vehicles with poor fuel economy. They didn’t foresee skyrocketing gas prices, and thus continued to make behemoth gas guzzlers en masse. However, they are learning from their mistakes. The Volt is GM’s monument to their commitment to restructuring their offerings to reduce vehicles’ dependence on fossil fuels. The Volt is slated to debut in 2010. Cars like the Volt, in addition to similar hybrids being developed by Ford, are a strong signal that Detroit is moving away from gas hogs like Hummers toward greener, more efficient vehicles.