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April 8, 2015

What a Difference Six Years Makes: From Chapter 11 to Record Sales, the Domestic Auto Industry Continues its Resurgence

Nearly six years ago, the dominoes began to fall in the U.S. automotive industry. With U.S. market share down from 70% in 1998 to 53% in 2008, the domestic auto industry was struggling. To survive, General Motors and Chrysler secured government support, while Ford secured a line of credit through the private markets.

With the Great Recession battering consumers’ wallets, and sales continuing to decline, Chrysler was forced to file for Chapter 11 bankruptcy protection on May 1, 2009, and General Motors followed suit a month later. Numerous auto suppliers, including Visteon, Metaldyne and Lear, also opted for Chapter 11. The outlook was bleak.

Despite the challenges they faced, and with the support of the U.S. Treasury, Chrysler and GM raced through bankruptcy. They emerged, as did much of the domestic supply base, leaner, more nimble and with much stronger balance sheets.

When the economy finally turned, consumers were ready spend and sales skyrocketed. The conversation turned from whether the companies could generate enough sales to survive, to whether they could keep up with new demand.

In 2010, the “Big Three” gained market share for the first time since 1995, and by the first quarter of 2011 they were generating net profits. In 2014, the industry sold 16.52 vehicles, the best result since 2006. 2014 sales were up 5.9%, marking five consecutive years of growth. And with low interest rates and low energy prices, forecasters are predicting a robust 2015 – up to 17 million car and truck sales.

It’s been a remarkable turnaround story, and it’s still unfolding. Just as things have rapidly improved for the industry, there will be challenges ahead. When challenges do return, however, the industry should be in a much better position to confront them. Much of the long term debt, unsustainable labor costs and excess capacity that forced companies into bankruptcy six years ago has been wrung out of the system. And with the painful memories of 2008/2009 still fresh in the minds of many industry leaders, it’s unlikely that many of the mistakes of the past will be repeated anytime soon.

As a leader in automotive industry financial advisory, performance improvement and turnaround and restructuring consulting, our professionals stand ready to help automotive companies confront challenges and seize opportunities. Contact a member of our Automotive Industry group to discuss how we can help in this highly competitive and ever-changing marketplace. Visit us regularly on Facebook, Twitter and LinkedIn for more insights about the automotive industry.