Blog: Tough days
Dave Leggett | 16 February 2009
More news of headcount and production cutbacks rolled in last week. And today there’s the BMW Mini announcement.
Depressing though it is, it is to be expected. At this stage in the downturn companies will take a hard view on where volumes are likely headed in the foreseeable future and react accordingly. While they are generally reluctant to lose skilled workers – who represent an investment by the company and will be required when things eventually pick up – there comes a point at which the economic case for maintaining the full payroll has gone. If output projections are substantially cut, then associated costs have to be reduced also.
This is not to be confused with the restructuring that some companies have been doing anyway – in Detroit, for example. That has been happening regardless of economic conditions and represents a structural adjustment to specific company difficulties. The economic downturn is an additional overlay and it impacts everyone. No-one escapes unscathed when a third of the market is suddenly gone.
How bad will it get? The dust seems to have settled in the sense that there appears a general consensus that we won’t see a swift rebound this year. The West European car market will likely be down by around a fifth in 2009. The US light vehicle market is heading for 10m-11m units, a very far cry from the last peak of over 17m. And the emerging markets, alas, won’t be taking up the slack.
Assumptions at this point appear to be that 2010 will see the start of a slow recovery to demand that gathers pace in successive years. But previous market peaks, fired up as they were on easy credit and booming asset valuations, won’t be seen again within a five-year planning horizon.
Keep a close eye on the professional forecasters and what they are saying. I noticed that when JD Power reported the rather grim European sales numbers for January, it nevertheless did not revise down its forecast for the market this year. It saw no reason to downgrade the European car market expectation still further (which it had been doing regularly in recent months). That is perhaps a small sign that we are getting to a market situation that is in line with expectations, depressed though they undoubtedly are.
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