The so called “Great Recession” which took place between late 2007 and the middle of 2009 was the largest financial crisis we’ve seen since the Great Depression in the 1930s. Many industries took a hit during the recession, but undoubtedly the auto industry was affected the most. The auto industry recession almost wiped out the United States automotive industry for good. However, a government bailout package saved the Big 3 automakers of GM, Ford and Chrysler, which allowed them to stay operating in the US.
There are many causes for the financial crisis of 2008, with the primary causes being credit was too easy to get a hold of, and the value of homes were inflating at a rapid pace. The price of homes eventually increased to the point where they “popped” like a bubble. Home prices rapidly decreased and many homeowners found themselves “underwater” in their mortgage – a condition that occurs when a homeowner owes more on their loan than their home is even worth. This led many people to lose their homes, and the unemployment rate skyrocketed.
Because people could no longer afford their homes and didn’t have jobs, the auto industry recession started in full force. People were unable to purchase new cars because they had no money, and they couldn’t secure credit to obtain a car loan because the requirements to obtain credit had tightened severely. Eventually GM and Chrysler were forced to declare bankruptcy and accept government loans so they could restructure and get back on their feet.
Impact on Overall Economy
The overall economy took a massive nosedive with the start of the auto industry recession. The profits of the major car manufacturers have long been a benchmark and economic indicator used by economists and government analysts for years to determine how well the economy is doing at large. When 2 of the big 3 auto makers had to declare bankruptcy, it scared many people because they thought the country was headed for another depression.
Thankfully the economy was able to turn around and so were the automakers. GM and Chrysler have repaid the majority of the money they borrowed from the government, and they are making profits again. The future is uncertain for the auto industry recession. Many experts speculate a second recession could strike at any time, which would surely doom the auto industry for a long time.