During the recession, another problem facing the auto manufacturers was an inability to keep their plants running at or near full capacity. In the first quarter of 2008, overall capacity utilization fell to about 32 percent, and in January 2009 the utilization rate for light vehicles sank to a record-low 25.9 percent. By comparison, the overall rate averaged 77.6 percent between 1972 and 2007. In 2010 and 2011, the first two years after the restructuring, capacity utilization shot back up to 70 percent overall, much higher than in the aftermath of the recessions of the 1980s and the early 1990s, when utilization one year after the lowest point averaged about 60 percent.
The improvement in utilization is, of course, largely a reflection of how many plants the Detroit Three closed during the recession and recovery. Between the end of 2007 and the beginning of 2010, they shut or planned to shut 16 plants, compared with six plants closed during the recession of the 1980s. This rapid reduction in capacity helped the three companies become profitable while producing fewer vehicles.
The restructuring also affected the industry’s geography by accelerating the concentration of nearly all U.S. production in the so-called Auto Alley, a narrow corridor stretching from the Great Lakes to the Gulf of Mexico. The corridor’s share of U.S. assembly, which had risen from 62 percent in 1985 to 78 percent in 2007, blossomed to 83 percent by 2010.
Was the bailout worth it? That depends on your perspective. The White House has consistently said that the government-assisted restructuring of Chrysler and GM was essential to their survival, and by extension to Ford’s survival. But in 2011, the Congressional Oversight Panel objected to what it called the “moral hazard” posed by the bailout, declaring it “sent a powerful message to the market¬place—some institutions will be protected at all cost, while others must prosper or fail based upon their own business judgment and acumen.” And Washington will likely lose money on the bailout by the time it sells the last of its GM shares in April 2014, the authors add.
That said, the Detroit Three still exist, and things are looking up for all of them. Overall sales for the three companies jumped from nearly 4.7 million vehicles in 2009 to 6.0 million in 2011, a year in which market share increased for the first time in decades and all three turned a profit. After their roller-coaster ride through the Great Recession, the authors conclude, the companies are now benefiting from what seems to be “a genuine shift in momentum.”
The government-backed bailout of Chrysler and GM not only saved two of the United States’ biggest corporations, it also fundamentally altered some crucial characteristics of the U.S. auto industry, helping to bring it in line with foreign competitors.
- Matt Palmquist is a freelance journalist based in Oakland, Calif.