Carmakers need to adapt to survive, writes Motoring Editor Michael McAleer
CAR FIRMS are victims of the financial crisis, not the cause, according to Dieter Zetsche, chief executive of the Daimler group and head of the firm’s Mercedes-Benz car division.
Speaking at a preview event for the Detroit motor show this week, he said: “Looking at some of the recent criticism levelled at our industry, I want to emphasise one point: the automotive sector is a victim of the crisis, not the cause.
“Treating auto companies as the object of vilification doesn’t make sense. It doesn’t help the economy, it doesn’t help the environment, and it certainly doesn’t help people.”
Nevertheless, in a market that’s dramatically contracting, the fundamentals of an industry created to cater for a different era are being called into question. With many car plants closing for several weeks to reduce unsold volumes, dealers in the US and Europe are desperately trying to manage their stocking levels. Chrysler, for example, has closed all of its plants in north America for a month, up to next Monday.
With $17.4 billion of US government aid made available to the three US auto giants – General Motors (GM), Chrysler and Ford – the Detroit show, a bellwether of the industry, has lost all the glitz once associated with motor shows. After being strongly criticised for the use of corporate jets by management attending Senate hearings prior to be government aid, and with taxpayers’ money now invested in both GM and Chrysler, US car executives want to appear frugal – reflected in the rather basic format of their stands.
Chrysler – the most likely of the three to be taken over, according to analysts – was relatively upbeat in its presentation. Questioned afterwards, vice chairman Jim Press claimed the dramatic fall in sales was down to the firm moving further towards restructuring than its rivals. “We’ve cut fleet sales by 63 per cent, thereby protecting our resale values as fleet is nothing more than an ego exercise, and we’ve dropped four models. That’s impacting on our sales figures but it’s all for the good as we become leaner.” Most analysts reporting afterwards remained unconvinced, however.
In a further sign of the industry’s mood and Detroit’s declining significance in the motor industry, several foreign car firms have shunned the show entirely. Nissan, Land Rover, Mitsubishi and Suzuki have joined premium brands such as Ferrari, Porsche and Rolls Royce in opting not to attend.
Nevertheless, while most attention is on the short-term financial viability of the car firms, several new vehicles are being unveiled, in particular new petrol-electric hybrid models and concepts of all-electric vehicles due for sale in the next year.
Toyota showcased its new Prius, due in Ireland later this year, while Honda revealed its new Insight hybrid model. However, while both hybrids offer the choice for drivers to run their cars on electric power only, most of the attention in terms of new metal fell upon the race to production of electric plug-in models for mainstream brands.
The industry is keen to take the car out of the environmental debate and the quickest way seems to be by replacing oil-burning engines with electric motors that can be plugged in or powered by hydrogen fuel cells.
The latter will require major infrastructure changes for supply and realistic predictions suggest a timeframe of at least another 15 years, but plug-in electric power is a realistic proposition within the next 12-24 months.
With GM hoping to have its Volt electric saloon car on sale next year – under the Opel brand in Ireland – Ford announced plans to have its own electric car on sale by 2011, though in small volumes and probably only in the US initially.
The overall impression is of an industry in a state of shock at the speed of the collapse in sales. Just as the Irish market is reeling from the fall in sales, so too is the industry globally. In the US, the industry infrastructure has built up to cater for a market that sells 16 million to 17 million new vehicles a year. As the market contracts, the fundamental oversupply of dealers and new cars is clear.
According to Richard Colliver, executive vice president of Honda America, the US government bailout of the financial industry has “not really improved” credit conditions and it is impossible to forecast US sales for 2009. He said he was unsure if the market would ever hit annual sales of 16 million to 17 million units again. But despite the cashflow crisis and difficulties matching high-volume production with rapidly falling global sales, the industry remains determined not to cut back on development.
“We will not put our long-term success on the line with short-term budget cuts in our product plan or in cuts in research and development,” says Mercedes boss Dieter Zetsche. “We consider our ability to innovate a major competitive advantage. That’s why Daimler’s research budget remains one of the largest in auto industry and we intend to keep it that way.”
Part of the research spin is no doubt directed at governments, persuading them that the car firms are eagerly developing new powertrains and eco-friendly alternatives.
The truth is, however, that the cost of such vehicles remains prohibitive and with fuel prices falling, customers are falling back to their old ways, with interests in regular lower cost engines – or they would be, if they were buying.