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Troubled Global Auto Industry Faces Wave of Consolidation

Wednesday, 14 Jan 2009 08:42 AM

DETROIT, Michigan -– Auto executives expect the industry to be hit by a wave of consolidation and potentially even bankruptcy this year amid a sharp drop in global sales and financial problems at the Detroit Three.

After falling an estimated 2.8 million vehicles in 2008, global sales are forecast to drop by a further 4.2 million to 66.6 million units, according to IHS Global Insight.

The bulk of the losses are expected in the United States, where sales could fall to 10.4 million vehicles, the lowest per capital sales rate since World War II.

A sudden drop off in sales at the end of 2008 amid a financial crisis, credit crunch and deepening recession put enormous pressure on the Detroit Three just as they were beginning to reap the benefits of years of painful restructuring.

Cash-strapped General Motors and Chrysler are currently relying on billions in federal loans to maintain operations and Ford has warned that it could also need government help if sales worsen.

Bankruptcy is not completely out of the question, said Irv Miller, vice president of environmental and public affairs for Toyota Motor Sales USA.

"I think they're hoping to avoid that with the federal use of funds, but I don't know if long-term that's a reasonable expectation or not," Miller told AFP on the sidelines of the Detroit auto show.

But while the US automakers may be in the toughest position, "nobody has been untouched by this situation," Miller said.

"Globally you're going to see consolidation," he said, noting the Korean manufactures are also "having difficulty."

The supply base will be severely stressed by massive production cuts at plants around the world and could soon be approaching manufacturers and governments for help, said John Mendel, vice president of automotive operations for American Honda.

"As far as manufacturers you're (already) seeing a disaggregation, a divestiture of brands from some of the Big Three," Mendel said, noting Ford is considering a sale of Volvo after selling its luxury mark Jaguar to India's Tata. GM is also consider a sale of Swedish mark Saab and its hulking Hummer brand.

"So I think we're starting at the tip of the iceberg," Mendel said in an interview.

The Chinese automakers are ripe for consolidation and there is also a great deal of speculation that "the Chinese would be well served to pick up a brand like a Chrysler or a Jeep that has an entry to a dealer network" in the United States, he added.

The European automotive industry could see "forced" consolidation should the current recession deepen and drag on, said GM Europe president Carl-Peter Foster.

"Whenever we talk about consolidation we have the feeling that something has to happen," Foster told reporters on the sidelines of the Detroit auto show.

"We could well see some surprises," Foster said. "It depends tremendously on how long this recession lasts because the longer it lasts the more companies will come into real distress and sooner or later there will be a forced consolidation."

One senior auto executive, however, questioned the strategic value of the German manufacturers given that they lack sufficient economies of scale and carry a "very heft cost disadvantage."

The executive, who asked not to be named, said a volume base of at least four to five million vehicles a year is needed to compete globally and fund the development of new technology.

Chrysler chairman Bob Nardelli said he was "disappointed we haven't been able to forge more alliances and partnerships."

The smallest US automaker said it had approached a number of different manufacturers -- including General Motors, Ford and Nissan-Renault -- to discuss strategic alliances or potential mergers but the talks were stymied by the current industry downturn.

But consolidation may not lead to a stronger industry, warned GM chief operating officer Fritz Henderson.

"Typically you want to consolidate because you want to create value. The history of our industry is consolidation destroys value," Henderson told reporters.

"So, I'd certainly say less volume points to the need for consolidation but it isn't necessarily the answer."

Henderson noted that the history of consolidation in the supplier industry has been "better" and said the current downturn might require the consolidation of brands rather than manufacturers.

Copyright © 2009 Agence France Presse. All rights reserved.

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DETROIT, Michigan -– Auto executives expect the industry to be hit by a wave of consolidation and potentially even bankruptcy this year amid a sharp drop in global sales and financial problems at the Detroit Three.After falling an estimated 2.8 million vehicles in 2008,...
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Wednesday, 14 Jan 2009 08:42 AM
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