The Frankfurt Motor Show’s first press day falls today on the anniversary of the collapse of Lehman Brothers. I do hope that this industry does not get carried away with its own PR today. Of course, motor shows are great stages on which to show the world just how clever automotive engineers and designers are. This one will be no exception.
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To some extent they are necessarily upbeat affairs, with a healthy dollop of corporate bravado and usually a bit of glitz and glamour thrown in. And maybe we all need something of a psychological uplift even more this year.
But let’s not forget how fragile things still are and how serious the problems are that are still facing this industry. I have heard a few voices saying that for this industry ‘the worst is well and truly over’. The implication is that we are now set on a growth path with things gradually getting ‘back to normal’.
Reality check: the US light vehicle market is running at almost half of what it was at its last peak. ‘Cash for Clunkers’ brought some temporary relief, but the US economy remains beset with serious structural problems related to the financial crisis that Lehman’s failure ushered in. There is still a shortage of credit that shows no sign of returning to ‘normal’. The banks are still hoarding cash rather than risking lending to one another.
It was just a matter of months ago that heavy and unprecedented US government intervention was required to keep General Motors and Chrysler afloat in some form, such was the severity and speed of the cash-flow crisis that accompanied unprecedented market collapse. The restructured US auto industry and its constituent companies still have to prove long-term viability as businesses that can turn a profit. Downsized suppliers everywhere remain heavily stressed, even if the OEM volumes have picked up – from the floor.
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By GlobalDataIn Europe, scrappage schemes are doing a good job of lifting the market but there’s a ‘pull-forward’ effect that will be followed by ‘payback’ when temporary schemes end. We could be facing a significant decline in the European car market next year. More restructuring lies ahead – just look at the continuing public debate over Opel job losses and where the axe should eventually fall. A beggar-thy-neighbour approach from national governments desperate to retain jobs isn’t exactly the ideal backdrop or recipe for long-term business success. The ‘O’ word – overcapacity – is very much the elephant in the room in Europe.
Elsewhere around the world it’s a very mixed picture. Russia’s car market and auto industry is in a very deep crisis. It will be a few years before anyone present in Russia is smiling over volumes again. China and India are looking better but much is based on the impact of huge domestic fiscal stimulus packages.
China, like other countries in the interconnected global economy, needs the whole world economy to turn positive. It may have a bigger domestic economy now that it once did, but that was built on the export of manufactured goods.
We are facing a somewhat hesitant, possibly very uneven, global economic recovery that will also be held back in the medium- to longer-term by the huge costs to governments (ie taxpayers) of bailing out the banks last year following Lehman’s spectacular failure.
Another unhelpful development is the potential for trade friction and protectionism. A spat between the US and China over tyres could escalate and if it does the automotive business globally would be right in the front line. The G20 leaders will have their work cut out to nip things like that in the bud before they ruin prospects for everyone.
For the global economy there are uncertainties ahead and much to do to get back on a sustainable recovery and growth path. Automotive markets everywhere absolutely depend on that.
For the auto industry’s OEMs and suppliers therefore, things are far from back to normal and may not ever be quite what they were.
More companies are going to fail and more automotive workers will lose their jobs. Unemployment in the West will continue to rise for a while yet and underlying demand for new cars in mature markets already knocked for six in this recession will inevitably continue to be subdued – compared with a few years ago – in these circumstances.
Yes, it could be worse and things have at least stabilised, but there are still some very tough times ahead for many in this industry. And just imagine the consequences if commodity prices and interest rates were to rise sharply over the next year.
Okay, that’s enough brutal realism/gloom, I think. Let’s hope that the building blocks for a sustainable, if slow, global economic recovery are moving into place and that policymakers collectively can create the right conditions for it and overcome any hurdles. And let’s hope also that the ever-changing automotive industry is able to successfully adjust and adapt to changing economic conditions and demands. There is plenty of evidence to suggest that it is already taking some very positive steps.
As ever, there will be plenty of new product and concepts to cheer in Frankfurt. And please, enjoy the show for what it represents and showcases. Just don’t get too carried away with the glitz when it comes to prospects for this industry of ours. Maintaining volume and doing that profitably remains the major challenge and that challenge is bigger for the companies exhibiting at this year’s IAA than it has been in decades.
Dave Leggett
