Type: News
In Sweden the financial situation looks somewhat better but resource utilization is still low and unemployment is rising and is forecast to reach 11% during 2010. Car sales worldwide are still low but a slight recovery can be seen in the USA and Europe in July, but there is the risk of a backlash when the scrap subsidy ceases according to J D Powell analysis. In summary it feels as if a turning point has taken place, but the upturn will be slow and fragile.
Environment still in focus
In July the G 8 countries agreed that global warming should be limited to two degrees. This position provides a guideline for the Copenhagen meeting in December 2009 when the successor to the Kyoto agreement will be negotiated.
On the car front, interest for electric and hybrid cars is considerable and a number of new models are in the pipeline or have been presented. Battery prices and capacity are still limiting factors and Bosch President Franz Fehrenbach says that the electric car breakthrough will not materialize until the cost of batteries is reasonable.
Gas driven cars decline in Sweden
Environmental car sales declined in July when the direct subsidy of SEK 10 000 ceased and was replaced by a five-year tax emption from vehicle tax. Gas driven cars made up only 11% of new car sales during the second quarter and the share of diesel cars increased to 52%. Gas driven cars enjoyed the biggest jump with an increase to 22% during this quarter. Sweden and Norway will build a "Green Highway" between Sundsvall and Trondheim where charging stations for electric cars will be found at twelve mile intervals in 2009.
Clear direction
The trend within the environmental area is clear and means that car manufacturers are working with so-called "Down Sizing" in order to save gas in traditional motors, i.e. reduce the size of the engine. Gas efficient and diesel engines have been launched in rapid succession. Thereafter comes light hybrids, which is followed by full hybrids that are developed into "plug in" hybrids. Thereafter the step to electric car is not too long.
All manufacturers are aware of the direction, but there are varying distances to go. It feels as if the biggest drive is in Asia where Japan is in the forefront. Korea is well on its way and China is investing heavily. The advantage can be difficult to catch up to for the auto industry in the West. A coordination of development resources and distribution of work areas is required and here there is room for government measures perhaps mostly on a EU level.
Politicians deeper and deeper in the car industry
In the big car manufacturing countries the unease for declining jobs lead to demands for government bailouts to the auto industry. In the USA the government has invested huge sums of money in order to save the domestic car industry. In Europe the various countries are supporting their car industries in different ways. The EU is trying to limit subsidies and direct capital contributions via the European Investment Bank (EIB), which lends out money to green development against government guarantees.
Scrap subsidies have also been demanded by industry and have been introduced in several countries in Europe and also in the USA. The effect has been an incline in car sales with a clear direction towards smaller and more fuel-efficient cars. In the USA the program "Cash for Clunkers" has been popular and the money depleted quickly. The program was discontinued on August 24. In Germany sales have increased but BMW and Mercedes have not increased appreciably, but it is VW, Opel and imports of small cars that have been favored. In Sweden the scrap subsidy is being demanded but the government is callous and investing in tax exemptions for environmental cars. Critics say that a scrap subsidy only brings forward a purchase and then comes the downturn.
The government assists in reconstructions
The governments of Sweden, Germany and the USA have become deeply involved in the reconstruction of sections of the domestic car industry. The US State has become majority owner in GM and part owner in Chrysler. The ownership will be phased out when possible, but first the companies must stand on solid ground, which demands reconstruction and cuts. Fiat will lead Chrysler and it will be exciting to see what the Fiat President Sergio Marchionne can achieve.
In Germany the believed appearance of the Magna purchase of Opel turned out to be less clear than what the rest of the world believed. Magna has competition from the Belgian holding company RHJ that has received GM´s favor. The German government would like Magna as the owner and is using its promised co-financing as pressure. It is difficult to know how much tactics and factual reasons that make up the turns surrounding Opel. A possible purchaser will have the possibility to trim the business in Germany. GM is afraid Magna´s Russian connection will lead to technology transfer where the government and the union would like as many jobs as possible to remain in Germany. Furthermore there is new information almost every week about what GM really wants with Opel.
In Sweden, Saab´s reconstruction has been carried out but Koeningsegg´s purchase has not been cleared. GM would like to sell and Koeningsess would like to buy, but there is a lack of funds. An EIB loan of 4-5 billion with government guarantees must be in place and in addition a further 5 billion is lacking in the financing plans. Where the funds will come from is unclear and Prime Minister Reinfeldt has clearly stated that the government does not wish to contribute to the 3 billion that is lacking. Ford´s sale of Volvo Car Corporation has been dragging on, which can be explained since things are looking up for Ford and Volvo Car Corporation is also showing progress. The panic to sell quickly has subsided and perhaps Ford is waiting to negotiate with the party that does not get Opel. European and Swedish interested parties should be in discussions regarding the future of Volvo Car Corporation. AB Volvo has, however, denied all interest of partnership in Volvo Car Corporation.
Uncertainty is damaging
What Opel, Saab and Volvo Car Corporation all have in common is that uncertainty and subterfuge with respect to the future and tactical maneuvers damage the companies, Employees, customers and the brand are hard hit. Taking back consumers who have now abandoned the brands is difficult, expensive and takes time while at the same time there are many hungry competitors just waiting to attract car buyers. One can also wonder if Ford and GM really want to sell now that capital has been secured and the future is looking somewhat brighter. Opel has been important for GM and the risk that Opel will develop into an aggressive competitor in Russia is considerable. Ford has learned a lot from Volvo Car Corporation and under other ownership Volvo Car Corporation can also become a tough competitor. Furthermore Volvo Car Corporation can under Chinese ownership, help to bring a new competitor into the US market, which is an important market for Ford. If feels, on the other hand, more evident that GM is serious in its efforts to sell Saab.
Several manufacturers experiencing tough times
The car industry is very much affected by events that take place with GM and Ford — what will happen with Opel, Saab and Volvo Car Corporation? In Europe, it looks as though Fiat will not obtain Opel and Fiat´s sights are set on the PSA Group (Peugeot, Citroën) who is interested in collaboration. Renault is experiencing tough times but investing in electric cars together with Nissan. Fiat believes in a profit for the entire year, but has had a troubled period during the latest quarter. In Germany, BMW and Mercedes are experiencing tough times and have not been favored by the scrap subsidy like VW and Opel. VW is going strong and has exited the "Porsche fight" as winners where Porsche will be organized as a subsidiary within the VM Group of Companies. That VM will continue to hold a very strong global position feels totally right and VW has the ambition to grow even further.
The Japanese carmakers have lost considerable volume and profitability, but both Toyota and Honda have resources to cover huge losses and continue to promote an active development.
China is now the world´s largest car manufacturing nation and the Chinese government want to take a firmer grasp of the development. The number of car companies will be limited and the development will be coordinated so that it does not grow out of control. The government is investing billions in green technology and in order to grow and strengthen Chinese brands to be strong and succeed internationally.
In Sweden there is unease for the development of the Swedish passenger car industry, and furthermore AB Volvo has major problems in its markets and report a humungous loss of just over SEK 7 billion for the second quarter of 2009. Scania has reported a loss but marginally compared with AB Volvo´s. Scania believes in increased production pace during the third quarter this year. A successful sell off of inventory and rising order intake are providing hope. AB Volvo has also noted rising order intake, but view the market development as extremely difficult to assess.
A shaken up auto industry in the West and big demands on development and with ever increasing aggressive Asians competitors entering Western markets demand action. Collaboration within development, coordinated research within electricity and hybrid areas and new collaborative constellations will be needed. We have also seen two different marketing strategies: in the USA where GM and Ford are clearing out brands while VW and Fiat are creating new ones.
Easy to forget suppliers
Supplier have experienced very tough times in the deep downturn on the auto markets, and to a certain extent, their circumstances have been buried by the drama surrounding the big car companies. The role of the suppliers should not be underestimated. Active, quick and innovative suppliers are needed and are a prerequisite for the auto industry in Europe to be able to develop despite relatively small volumes with several car manufacturers.
Is the market sufficient?
The second half of 2009 will contain a lot of drama for the auto world. A new climate agreement will be negotiated. The ownership situation for Opel, Saab and Volvo Car Corporation must be cleared up. The economic development will likely set much of the scene for direction and how fast solutions can be found to the questions. The fundamental problem with global over capacity within the auto industry seems to remain present and the questions have focused more around financing and employment instead of — are there buyers for the current and planned production capacity and how deep should government be involved in the auto industry? Three parties decide the development: Politicians, carmakers and car buyers. The politicians have had a say — preserve employment, the carmakers — want government funds and car buyers seem to be doing the only correct thing — buying cars that are best for their wallets and the environment.
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