Why is Auto Industry So Important?

The June1 deadline for decision on bankruptcy of the biggest car manufacturer is closing in. The U.S. automotive majors are keeping their fingers cross. But the world too is worried. The effects do not end with the big three. Global car player like Honda Motors, Volkswagen, and Toyota are also worried that this decision will have an impact on them.

The centrepoint, the United States citizens and government are both contemplating on the future of auto industry and its effects on their economy. The slowdown in auto industry has hit North America and Europe and experts are trying to understand the depth of problem. The impact has been so big that the global automotive industry is witnessing an unprecedented drop in car sales. The effect has spread far and wide and every car manufacturer on earth has been affected by the slowdown.

The major fallout of the slowdown is that the Italian car manufacturer Fiat SpA, which was under losses till six years ago, is now bidding for GM’s big Europe brand Opel and also for world auto major Chrysler. Overall there is fear and panic that the auto industry may not recover completely and will need support by the government. But, people are also asking as how did auto industry become so important that world economies are worried about it? Let us see some basic effects of the auto industry.

The total turnover of auto manufacturing worldwide is around $2.6 trillion, This is more than the Gross Domestic Production (GDP) of France, but slightly lower than those in United States, China, Germany, and Japan. The automobile manufacturing industry contributes nearly 3-4 percent of the total GDP (gross domestic production) to the United States economy. As per a report submitted by Frost and Sullivan, it contributes 6 percent of the GDP to the European Union.

More than 9 million (90 lakh) people are employed in the auto industry across the world. The auto experts say that these people are directly employed in the auto manufacturing sector, comprising 5 percent of the global labour force. Every job created in manufacturing sector directly helps support five more jobs indirectly. And this is an estimate. Roughly 50 million (5 crore) people are employed in automotive and related areas. That means nearly 10 percent of the workforce in the world depends on the outcome of the automobile sector.

In the world’s biggest auto market, United States employs more than 8,50,000 people were employed in the manufacturing sector till the end of 2008. The biggest companies General Motors, Chrysler, Ford Motors, Honda and Toyota Motors, had the biggest workforce. The Asian auto giant Japan provided jobs to 7,25,000 people in the car manufacturing sector till 2008. The total Japanese workforce managed to produce 11.5 million vehicles in 2007. This was the figures given by Japanese Automobile Manufacturing Association (JAMA).

As many as 7,25,000 people are employed in the Russian auto manufacturing units. Russian automobile industry is closely linked to Europe. Germany hires over 5 lakh people directly. It has worlds’ biggest luxury car manufacturers like the Mercedes- Benz, BMW, Audi and few super luxury car manufacturers. It is also the Europe’s biggest auto market

Car sales are expected to fall by 50 percent in the year 2009. Other sectors like steel industry and plastics too will feel the heat. The magnitude of the problem is hard to imagine. Not only will jobs be lost but revenues of several countries will dip drastically.

India on other hand is facing an upward trend in auto market. India is the 14th largest car manufacturer in the world today. As per automotive mission plan(AMP), drawn up by Society of Indian Automobile Manufacturers(SIAM) India will be the seventh biggest manufacturing hub and revenues will reach a minimum of 122 billion U.S. dollars.