A new beginning for the Auto Sector or is it the beginining of the end?

This Tuesday shall be remembered as a dark day for the auto industry as it marked the beginning of the company wide reduction of General Motors Corp.’s salaried workforce. GM is said to have told about 160 people at its manufacturing engineering operations in Warren that they would be laid off as of April 1. GM is currently surviving on $13.4 billion in government loans and has requested another $16.6 billion. In addition to white-collar jobs, GM is expected to eliminate 18,000 more U.S. blue-collar positions by year's end to bring their labor costs to make them on par with their Japanese counterparts who are also facing the brunt of the auto sales downturn in 27 years.

The absence of this bailout package would have put the global auto sector on the brink of collapse. The critical nature dawned to the world when GM bought a few weeks of time by letting Suzuki buy back the 3% of stake GM had in Suzuki. There was a fear that if the even one of the big 3 in Detroit - Ford, GM and Chrysler - failed the auto sector would have collapsed. The supplies of the auto components at sourced from small shops across the world which tend to more than one auto major. If any one of these 3 collapsed, then there was a chance that these small industries would collapse, thus affecting the supplies of the other OEMs which have their presence scattered all over the world. Financial researchers who have mastered sector research were spending sleepless nights to study the impact this bailout on the various sectors so were the fund administrators who were worried of the health of their funds.

Tourism Sector: Sector Research Perspective

The year of 2008 saw the oil prices soaring to new highs and touching about 150 USD per barrel (about 40% higher than the average price in 2007). Speculator spread rumors that it could also touch 200 USD per barrel. However by Feb 2009, it stabilized in the region of about 45 USD per barrel. One of the sectors that was worst hit by these fluctuating prices was the tourism industry.




Domino Effect:

The economic downturn is also expected to have a severe impact on the business travel which according to the World Tourism Organisation (UNWTO) accounts for about 15% of the passenger arrivals worldwide.

The tourism sector had borne the major brunt of the aftermath of 9/11 attacks which saw even some national flag carriers such as Sabena and Swissair collapsing. In India some of the major airlines such as Kingfisher and Jet-Airways allegedly defaulted on some of their payments and even entered a mutual agreement which raised the eyebrows of the regulators responsible for protecting consumers from monopolies.

Sector Research: Analysis of the Domino Effect

Financial analysts have spent sleepless nights trying to analyze the impact of such cascading effects where the performance of one sector can cause havoc on the results of another sector. Employees of KPOs have spent sleepless nights trying to evaluate the impact of such variations in prices and agreements between organizations on the financial health of the funds administered by them.

The current crisis has shown that sector research is a non trivial task as it involves the a detailed impact analysis of financial health of one sector on the financial health of the other. Such domino effects can have hair raising consequences if not analyzed correctly.