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Indego / IndeGo Forum / "I'm a carmarker - get me out of here!"

"I'm a carmarker - get me out of here!"

 

Monday, 08 December 2008 19:53

Television in in the UK currently includes a number of series which could have been made for today's global auto industry.  "Strictly Come Dancing" does not have as many twists and turns as the US Big Three have woven into their two Senate Committee hearings to date.  As one manufacturer after another has declared that they are cutting back production, jobs and investment, we realise that nobody - not even Toyota or Porsche - has the X-Factor which is what Simon Cowell is looking for in another televised contest.  And then today, we had Sergio Marchionne, CEO of Fiat who declared at the Paris Show only six weeks ago that he saw the European market being down 2%-5% in 2009, and that he hoped "not to have to review targets in 2009" effectively put the "for sale" sign up on Fiat Group.   He could have said "I'm a carmaker - get me out of here", echoing a third popular celebrity TV series.

 

It is clear that the auto industry has never seen such challenging times - forget all previous economic cycles.  The carmakers and their suppliers are much larger than they were in the 30's or even the 70's.  The process of consolidation has made the stakes much greater for everyone, and with confidence and credit completely lacking in all markets, the industry has come to a shuddering halt.


If there were potential buyers out there, then the situation would be very different.  Cerberus would exit from Chrysler, licking their wounds, but with a new owner building a future around the Chrysler assets and people.  Ford and GM would be able to take their pick from a number of suitors for the brands that they want to divest, including Volvo and SAAB.  Fiat and TATA would be completing the marriage which I believe was planned, though never announced.  The Chinese would be extending their reach into Europe and the US through alliances and acquisitions.  The ambitious and strong would be moving forward, whilst the weak and slow would be absorbed or stripped of their jewels and quietly left to die.

But that is not the situation.  When even Toyota suffers a credit downgrade, and many auto stocks are trading at a small fraction of a couple years ago, there are no potential buyers.  Private equity is no more, and to the extent that they still have investment funds, the Cerberus experience in Chrysler will ensure that they do not invest in what seems like a bottomless pit of operating losses and investment needs.

I fear that for the most part, the industry will limp through the next couple years, in more or less the same shape as today, emerging much weaker, and in no fit state to address the challenges of emissions, fossil fuel dependency and chronic road congestion.  Just at the time when we need a strong industry to face the challenges ahead, we will have a bunch of invalids, not able to move themselves forward, let alone support others or society at large.

For sure, we will lose a few by the side of the road.  Hummer and SAAB for example?  Some of the many smaller Chinese manufacturers?  Perhaps one or two larger players will manage to conserve their strength and at the first sign of recovery, will pick up some prime assets at knockdown prices from weary, shell-shocked management and shareholders?  It is not an exciting prospect for anyone who has worked in and loved this industry for decades, as I have done, but it is difficult to see who will have the confidence and financial strength to take advantage of the current disarray to forge a new auto industry for the post-Credit Crunch world.

 

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