Essay Sample on Logistics of the US Automotive Industry

Published: 2023-02-02
Essay Sample on Logistics of the US Automotive Industry
Type of paper:  Research paper
Categories:  Problem solving Automotive industry International business Financial analysis
Pages: 7
Wordcount: 1875 words
16 min read

There is no secret that the United States automotive industry is looking rather grim. With the $50 billion-dollar General Motors bailout of 2009 and the recent closure of plants in the U.S., while keeping plants open in other countries, the U.S. automotive market is failing fast. Recently Ford Motors announced they would stop production on most sedans to focus on the mustang, SUVs, and trucks. With the two largest U.S. automotive companies looking to downsize, many other countries' automotive companies are growing exponentially and even increasing sales within the USA. To answer why this is happening and what will or could be the effects, we can start by looking at this from a logistical standpoint. Automotive logistics refers to the flow of automotive producers' raw materials, components, vehicles, and spare parts. We need to look at import vs. export in other countries, what they are doing right, how much our economy depends on the automotive industry, what we are doing currently to protect the U.S., and what foreseen challenges the U.S. is looking to face if the automotive industry was to crash.

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Challenges in the Automotive Industry Logistics

Automotive logistics is experiencing a lot of complexity that the automobile industry in the USA is struggling to keep up with. It is perhaps one of the reasons as to why the industry is slowly failing. There are trends in the automotive logistics that are trying to reshape the industry. The trends show that there are a lot of challenges that the auto industry should expect as the world becomes a more complicated place to operate in logistically. The first challenge is customer expectations. Companies should strive to satisfy their customers. It is the first logistic and most important thing. Customers are becoming more demanding, which is a problem for the auto industry in the USA. Another challenge is the network economy that expects companies to interact all way round. They are expected to integrate their systems and processes. It is a logistic challenge as companies have to stop thinking as an individual company and adopt network thinking. Another problem leading to the falling of the auto industry in America is a shortage of talent. There are few qualified people to lead in research required in the industry.

The automobile industry in the USA is changing at an alarming rate. There have been a lot of changes in the decisions made on product lines, safety improvements, engine platforms, fashion, and marketing development for the past five to seven years. The US auto industry is moving from the production of trucks and SUVs to the creation of smaller cars. It is hard for one to read a newspaper in Detroit without noticing changes in production, personnel, and product (Sabadka, 2015). The US auto industry is also being affected by the influx of new domestic competitors. Volkswagen has opened a new assembly plant in Chattanooga, Tennessee and Hyundai has a new assembly in Georgia. These companies are venturing in the United States seeking cheaper production due to the falling dollar-to-euro currency exchange. It has created more problems for traditional domestic companies. It is therefore essential that we understand some of the factors influencing automotive logistics in the USA.

The first factor is the cost. Due to better supply chain management and logistics, the planet has become smaller. Productivity is increasing, and never-ending research follows it for products at the lowest cost. It has led to changes in the need for manpower equipment and facilities in the United States. An expansion of warehouses and equipment once accompanied the logistic growth. Now companies are struggling to find space and facilities to store their materials. They are also seeking space in foreign countries to avoid overseas shipping delays. The auto industry is now governed by flexibility and speed for it to be successful. In recent years, the big domestic auto industries have opted to source their raw materials from low-cost countries (Zielinski, 2007). However, the automotive industry was late to make this move, unlike other sectors, which is one of the reasons why the industry is struggling. Some of the components sourced out of the country are cheap labor and low production cost. Other factors influencing the industry are currency issues, inventory concerns, content regulations, supply chain costs, and the desire to increase the model mix flexibility.

Logistics is a crucial factor to consider when sourcing components as it is a crucial component of the total cost. When the cost of transportation is high and competitive, there are lower risks of safety and quality. There is also more reliability on material inventory increase, which is accompanied by a decrease in inventory levels. Consumers and manufacturers are always looking for the lowest cost, and logistics is a critical factor in ensuring that there is a low cost of production.

Another logistic factor affecting the USA auto industry is financial challenges. The American automotive industry has failed to make the necessary steps to align itself with customer demands. It is one of the reasons as to why it is failing. The original equipment manufacturers (OEM) have recently done financial filings that show there are enormous write-offs for their large vehicles. The filings showed that by the end of the second year, the car is not worth the values indicated on their balance sheets. Consumers are more interested in car efficiency than is cost-efficiency in terms of miles per gallon. The increasing cost of fuel has prompted car manufacturers to look for alternative ways to build the right vehicles at the right places and for the right reasons. The American automotive is facing both demand and supply problems. There are too many trucks and not enough cars. Manufacturers are not sure of the type of cars to produce in the future due to the future fuel economy. Sales problems are also affecting the cars to provide. The stock shares of companies such as ford and general motors are near historic lows. The manufacturers are now struggling to convince their customers to stay with them.

The increased cost of petroleum products is not only affect ting consumers at the pump. Auto industries are also affected as they use some of these products for manufacture. A report has shown that polypropylene resin used to produce plastic components in cars is 45 percent more expensive than it was two years ago (Schroder, 2016). The prices of tiers have also increased by almost 20 percent since February. It is hard to absorb these cost pressures for long, which has led to the failure of the American automobile industry. The OEMs are fighting to stop the production of low-selling products. They have been struggling to absorb the high costs of petroleum products. They are also trying to find ways to reduce the overcapacity workforce. Another challenge is that there is little time to make the necessary adjustments so that they can begin to make profits.

Automotive Logistics in Other Countries

It is necessary to understand how automobile companies in other countries are doing. It will help to understand why the industry in the USA is failing. The best countries to focus on are Germany and Japan. Germany is one of the biggest automotive markets in Europe and the world. It is the best in Europe in automotive sales and production. The country also boasts the most significant number of OEMs in Europe, with over 40 OEMs located in the country (Boris, 2018). Another reason why the auto industry is thriving in Germany is because of its success in exports. In 2017, the German OEMs generated revenues of about EUR 272 billion, six percent more than they made in 2016 (Boris, 2018).

There are logistic reasons that can be attributed to the success of the automotive industry in Germany. One of the reasons is because the country's government has collaborated with the car manufacturers to ensure that they produce fuel-efficient cars. They are also revolutionizing the industry to ensure that all vehicles produced by 2030 run on alternative sources of power. The country has brought in policies to ensure that by the year 2020, its automotive industry will be able to produce one million electric cars. It will help the country escape the high cost of fuel. The German automotive industry has contributed over $19 billion into the project (Boris, 2018). The German government has also supported them with $1.6 billion to ensure that they meet the demand for electric cars (Boris, 2018). The country has also established electric power stations all over the country. Also, there are many hotels in the country with electronic chargers for electric cars. The collaboration between the government and the automotive manufacturers has led to the success of the industry in Germany, unlike in the United States, where automotive companies receive little or no support from the government.

Another country that can help us understand better why the auto industry in the USA is failing is japan. The japan automotive industry has been able to establish an effective reverse supply chain design, also known as a closed-loop (Tackney, 2009). They have also been able to manufacture cars that are environmentally friendly with limited resources. The industry has also established ways to reuse, reduce, and dispose of vehicles in the Japanese car market. Recent research has shown that the ELV regulations set by the Japanese government have triggered the growth of used car exports to developing countries.

The country does not add taxes on the exportation of used cars. It has allowed the car manufacturers to export used vehicles and recognized the economic growth for remanufacturers, the government, recyclers, consumers, and manufacturers in japan (Tackney, 2009). The country's automotive industry has also taken the initiative to develop a reverse supply chain in emerging countries to support its production. Reverse logistics is done by addressing issues on recycling remanufacturing and reuse of cars so as to reduce the cost of product components and raw materials. It is a long-term regulation by the japan automotive industry to reduce, recycle, and reuse cars (Wang, Lee, Kim & Park, 2015). The USA automotive industry does not apply reverse logistics, which is one of the reasons as to why it is failing. It is more concerned in the manufacturing of new components and cars without addressing the issues of how the already manufactured vehicles can be reused or recycled.

How Much Does the USA Economy Depends On the Automotive Industry?

The American automotive industry plays a massive role in the economy of the country. It touches a broad area of the economy from national and regional employment, innovation and development, government and state revenue, foreign investment, U.S. trade, and quality of life. The automotive industry contributes about three to 3.5 percent of the country's GDP (Schroder, 2016). It also employs over 1.7 million people involved in engineering, designing, manufacturing, and suppliers of components and parts for assembling (Schroder, 2016). It also employs sales personnel.

The industry is also a consumer of products from other sectors such as construction, machinery, raw materials, advertising, finance, computers and semiconductors, healthcare, and legal sector. The industry also spends about $18 billion annually to carry out research and product development (Schroder, 2016). The auto industry in the USA consumes a lot of products from other manufacturing sectors, making it a significant driver of the manufacturing industry in the country which contributes about 11.5 percent to the GDP (Schroder, 2016).

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