Blog: Dave LeggettGreeks send a warning

Dave Leggett | 15 February 2010

We were fairly forcefully reminded last week that the adverse consequences of the international financial crisis of late 2008 that ushered in the economic recession of last year are not exactly fully behind us. In fact, there are serious structural issues concerning national public finances and rebuilding household balance sheets that will take a fair few years to work through.

The German economy – by far the EU's biggest national economy and its industrial powerhouse - isn't rebounding very strongly. In fact, it's stalled – adding to worries over an economic 'double dip' this year in Europe.

We also saw a public deficit and debt servicing crisis in Greece that threatened to spill over into a broader crisis of confidence in the markets. Are stock markets – which surged last year - now set for a rebalancing? Is confidence generally about to take a knock? There is some talk of an asset bubble that could be about to burst.

Thank goodness, then, for the emerging markets and growth in China. Yes, but imagine if things – for whatever reason – turn a little sour there?

My point is simply that there remain serious global economic challenges ahead and those challenges are particularly relevant to the auto industry's overall demand environment and the companies that depend on that.

The worst economic scenarios may well have been avoided last year, but we are nevertheless a long way from business as usual. Governments are having to make the call on when to ease off on fiscal stimulus packages and start to make headway on bringing seriously damaged public finances back into balance. If they ease off too soon, the fragile economic recovery in the West may tank. Too late and the debt hangs around too long and dents economic prospects for the long-term.

Companies in the automotive business need to stay in crisis mode and be well aware of the 'what if' scenarios for a while longer yet. Look around. There are still plenty of question-marks for GM in its home market, especially. Toyota is enduring a torrid time on recalls. Ford – undeniably a relative star performer – nevertheless has a lot of debt. Renault posted an ugly looking record loss last week. Fiat's ambitious project to develop a successful alliance with Chrysler is far from a done deal.

The unrelenting pressure to trim costs and make efficiency gains wherever possible is still there, the relative competitive positions of the big automotive groups in this rather hesitant post-recessionary environment far from decided.

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