One reason is that, despite record sales, the Big Three automakers have suffered dramatic financial losses. On top of those losses, the increase in 0% financing deals that came after 9/11 to help sustain new vehicle sales forced manufacturers to take a small loss on almost every vehicle they sold, according to industry experts.
Still, the Big Three have continued to produce vehicles at record rates, providing bountiful freight for trucking companies that serve the automotive industry and helping the overall U.S. economy recover from recession.
The reason the Big Three have kept production rates so high is due largely to labor agreements those companies have with the United Auto Workers (UAW). The agreements require the Big Three to pay UAW workers their full salaries through September 2003, whether or not the Big Three operate at full capacity. Therefore, it has proved cheaper for these automakers to churn out record numbers of vehicles, despite taking losses on them.
The Big Three also have too much plant capacity in the U.S. They can build more than 20.4-million vehicles a year, even though sales have topped out at under just 17 million. Experts predict that once the current UAW contract ends next year, the Big Three will dramatically scale back production, close plants and lay off workers.
"The advent of aggressive incentives and the resulting high push of late model vehicles into the used vehicle market has eroded residual values," reports Carmetrics.com, an online automotive consulting firm.
Currently, Carmetrics.com says the residual value of the average passenger car is 41%, a decline of 100 basis points from 1997. The residual value for light trucks is now 46%, a decline of 260 basis points from 1997. Industry forecasts suggest up to seven final assembly plants could be shuttered, laying off up to 50,000 workers. And each job lost at a final assembly plant typically translates into four jobs lost at companies that supply components to those plants.
However things play out, automotive industry forecasts point to less freight in this sector for trucks to haul next year.