GENEVA VIEWPOINT: Europe's mixed report card
By Dave Leggett | 2 March 2010
The annual Geneva Motor Show opens from March 2 (first press day)
It's that time of the year again. The world's auto industry is gathering in 'neutral' Switzerland to show off its latest products, concepts and technologies. It will also provide an opportunity to look ahead and consider the changing business environment. For the auto industry and its companies, these remain very challenging times.
The effects of last year's global economic downturn have not gone away, even if things are looking brighter in some respects. In North America there has been some good news on the volume front. Vehicle production is now rebounding – albeit off a low base. US vehicle production in 2010 could end up around 25% up on last year. Battered Tier 1 suppliers are already feeling the benefit in higher schedules and better bottom lines.
And thank goodness for continuing brisk sales in China and India (as well as ASEAN and Brazil).
But such good news is tempered by the knowledge that the industry is not gearing for a traditional-style cyclical upswing. The US light vehicle market may end up approaching 12m units this year, a level that compares with 16m/17m units not so long ago. It's a slow and gradual recovery that comes with risks. In the developed economies of the West, talk of economic 'double-dip' persists. General economic concerns remain paramount with national governments and households alike facing a long-term need to rebuild unhealthy looking balance sheets.
Fiscal stimulus packages (combined with super-low interest rates) have supported economic growth across the world and averted a more serious economic slump, but they will have to be dialled down at some point. And that's when the underlying state of consumer and business confidence becomes more critical. We won't be facing a consumer spending spree anytime soon and that's probably no bad thing given the ultimately unsustainable nature of the last binge.
This year will be a tough year in Western Europe's car market. Yes, there was welcome support last year from government scrappage schemes, most notably in Germany, but those schemes are finishing. A resultant market reversal is in prospect.
And that brings us to the old chestnut of 'overcapacity' in Europe. Analysts are again talking about overcapacity and low levels of plant capacity utilisation in Europe. Well, we haven't seen much evidence of an industry adjustment so far (bar Fiat shutting a plant in Sicily and Opel one at Antwerp). Some important decisions have still to be taken at Opel. Saab had looked like a goner but was saved – for now. It has gone pretty quiet in France after president Sarkozy ruffled a few feathers at Renault in January. 'Overcapacity' is usually seen as someone else's problem. Give me my bigger slice of pie and the rest can fight over what's left. The long-term consequence of that way of thinking is higher cost and lower profit margins for all.
When the Chinese eventually come to Europe in force, the industry could suddenly get uncomfortably crowded, with major restructuring forced. If that is a scenario for the second half of this decade, getting ready for that competitive shake-out is surely an issue for now. The Korean brands performing so well now show how quickly things can change when companies get the product and brand image right. The Chinese, I'm sure, are watching the steady progress of Hyundai and Kia with great interest.
Brands and product are to the fore at auto shows of course. They will ultimately be the differentiators that separate the corporate survivors from the also-rans, as well as putting distance between established players and potential new entrants.
We will see a continued emphasis on clever technology and automotive efficiency at Geneva. Even the relatively big cars – like BMW's new 5 Series – come with ever more efficient engines and lower CO2 emissions. Indeed, the progress of the industry as a whole in this respect is impressive. When it comes to comparing European manufacturers and looking at sales weighted CO2 emissions, Fiat comes out on top. It's a small car specialist, so that's not too surprising. But there is some good news for beleaguered Toyota in the latest rankings produced by JATO and it's not all down to hybrid sales. Toyota's Yaris model helped it climb that particular league table in 2009.
Engineers, it seems, are doing a great job of making the internal combustion engine cleaner and better. In these tough times for many, that is perhaps worth at least half a cheer.
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GENEVA VIEWPOINT: Europe's mixed report card