Blog: Dave LeggettDoom 'n' gloom for some

Dave Leggett | 8 July 2004

The global demand environment for the auto industry hasn’t looked too clever lately. The June light vehicle market in the US was weak and that seems to have triggered a new wave of customer incentives from Ford and GM.

I recall that JD Power’s Bob Schnorbus recently predicted as much and he also said that consumers are becoming quite prepared to hold off from buying and wait for incentives in the belief that they will be back eventually. Experience suggests that they are right.

Europe doesn’t look too bad in total sales terms, but the overall numbers mask some significant cause for concern. Prices are increasingly soft across the region and there seems to be little sign of an end to sluggish demand conditions in Germany. Indeed, the talk in German companies is of the need for greater efficiency, lower costs and wage cuts. And fewer workers? That’s the big worry in Germany right now. People in fear of losing their job tend to be reluctant to spend on a new car.

And even the industry’s big growth hope, China, is slowing in earnest now as the authorities become more worried about inflation. I’m getting some déjà vu: in the past China’s authorities have failed to engineer a ‘soft landing’ for the economy in similar circumstances. There is a risk that this slowdown could turn into a full-blown demand slump that could last at least three years (just as more car producing capacity comes on stream). But the economy is still growing so let’s not get too gloomy just yet. We’re perhaps just talking lower, more sustainable growth.

But under-pressure Chinese market leader Volkswagen certainly won’t be laughing right now, particularly as GM has just pushed it into the number two spot for the first time. That’s certainly a coup for the General, but VW will be keen to make it a one-off blip. The price war there will likely intensify in the coming months, with adverse consequences for margins.

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