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The General Motors congressional hearings may be the most alarming example, but there's been an epidemic of product failures in the auto industry in recent years.

Investors are right to question whether the global auto industry has become so hyper-competitive that manufacturers can't simultaneously sustain profit margins and quality levels.

GM is not alone. In the past twelve months alone, Hyundai, Toyota, Nissan, Ford, Tesla, Honda, and Chrysler have been in the news for major recalls. Luxury brands have not been spared; in March, Volkswagen AG subsidiary Porsche announced it would replace the engines in every GT3 variant of its iconic 911 model because of fire risk.

Two recalls could be a coincidence; eight is clearly a trend.

GM's U.S. market share fell from 63 per cent to below 20 per cent between 1980 and 2009, according to Harvard Business School professor Rebecca Henderson. This astounding statistic highlights the incredible increase in competition as the North American auto market went from essentially a cozy duopoly to a global battleground for market share.

The intense competition is also apparent in company profit margins. Not one of the world's largest auto-makers has operating margins equal to the S&P 500 average. And, despite hundreds of millions of dollars in annual government subsidies, profit margins for the North American auto makers are among the leanest of all.

Auto-maker profit margins vs S&P 500 average

SOURCE: Scott Barlow/Bloomberg

Widespread product recalls are a sign that even the financially strongest car makers are under such intense pressure to maintain profits that corners are being cut to save costs.

The industry is ripe for consolidation but in most countries – Canada definitely included –governments are standing by with taxpayer funds to make sure it doesn't happen. Companies can merge all they want, but politics will not allow for job-killing declines in capacity that would increase broader industry profitability.

To make matters worse, like Toyota in the 1960s Chinese automakers are only getting started. SAIC is already the industry's 15th largest manufacturer and it won't be long before their products are competitive in North America at bargain prices. India's Tata Motors is at a similar stage of development.

The auto industry has some of the best-managed companies in the world, but outside of tobacco it's hard to think of a market sector with a more dismal outlook. There will be short-term opportunities as a company rolls out a successful product cycle, but investor returns will always pale in comparison to new economy sectors like biotechnology, software, communications, and nanotech.

Follow Scott Barlow on Twitter at @SBarlow_ROB.