April 7, 2009. Copyright 2009, Graphic News. All rights reserved

Recession-hit auto manufacturers brace for shakeout
By Neil Winton

LONDON, April 7, Graphic News:  As the recession deepens across the world and people fearing for their jobs slash budgets, the first thing to be crossed off the buying list is often a new car.

That is why the automobile industry is suffering so severely, and many famous brands are facing oblivion. In the U.S., General Motors has until the end of May to fight off bankruptcy, and even if it survives, is likely to consign its Saturn, Hummer, Saab and Pontiac brands to history.

Chrysler, which also owns Dodge and Jeep, has until the end of April to come up with a deal with Fiat of Italy. Fiat has offered to take a 35 percent stake in Chrysler. The U.S. government, which has kept Chrysler and GM afloat using taxpayers’ money voted by Congress, has said it will let Chrysler die if it can’t agree a deal with Fiat, which it wants limited to 20 percent.

In Europe, General Motors subsidiaries Opel and Vauxhall are pleading for government funds. GM’s Swedish subsidiary Saab has until the end of 2009 to find an investor to keep it alive.

As sales continue to slump across Europe, major European car manufacturers are subject to almost daily rumours from stock markets as the fight for survival becomes more desperate and a long-awaited shakeout looms.

Peugeot of France was supposedly about to merge with Fiat, which might include Chrysler too. Daimler of Germany, which makes Mercedes cars and trucks, was reportedly about to buy Opel. Opel’s small cars were said to be attractive to Mercedes, which makes many gas-guzzling luxury cars likely to be penalised under upcoming European Union legislation forcing manufacturers to improve average fuel economy. Neither rumour was true; yet.

German luxury manufacturer BMW and its bitter rival Mercedes have been talking openly about cooperating in the production of engines and components to save money. Some investment bankers want a full merger.

Troubled Opel, with factories in Germany, Belgium, and Spain and its Vauxhall operations in Britain, is seeking government aid of €3.3 billion, mainly from Germany. Opel-Vauxhall employs nearly 56,000 people in Europe, with more than 25,000 in Germany, about 7,000 in Spain and 5,000 in Britain.

Meanwhile car sales in Western Europe continue to drop, although the performance in Germany, Europe’s biggest market, and France has been mitigated by government scrapping schemes.

According to Automotive Industry Data, car sales in Western Europe fell another 16.7 percent in the first quarter of 2009, compared with the same period last year. In Britain, which has yet to unveil a scrapping scheme, sales dropped 31 percent in March. But in Germany, where buyers receive €2,500 if they scrap cars older than nine years and buy a new or nearly new one, sales rose 40 percent. France, which has a less generous scheme than Germany’s, saw sales rise by 8.1 percent.

This isn’t all good news for the European industry.

Buyers responding to “cash for clunkers” incentives tend to be at the lower end of the market, so Korean makers like Hyundai, or imports of Renault’s Romanian subsidiary Dacia, are big winners. Meanwhile upmarket brands like Mercedes, BMW and Audi languish. The scrapping incentives are also likely to have simply accelerated buying, and will leave a similarly sized crater in sales next year.
/ENDS