Auto Design

The American congress will have to say yes to the rescue of the American car industry. If not under the Bush administration, if will happen after Barack Obama replaces him at the White House.

Their 14 billion dollars “helping hand” is mainly going to save General Motor from bankruptcy and perhaps give some support to Chrysler (which will likely be the first victim of the current hurricane). Ford, for the time being, is resisting on its own as an independent company to maintain respect and credibility. It would just be happy with a favourable “credit line”, which is all right. If it happens, the sale of Volvo will give them additional breath and reach.

The government might eventually take a 20% stake into GM and become the largest (and ruling) shareholder. In addition the USA government is appointing a “Czar” to supervise the development of the American car industry, according to a policy that will give priority to the benefits of the nation, its environment, its economy at large, rather than short term profits for the management (first) and the shareholder (next). The top executives will see their unrealistic salary drastically cut. If they are allowed to keep their jobs.

Executives will see no bonus until their company (and the industry at large is well on its feet again) and shareholders may forget their dividends for a while.

The American car industry might eventually listen to the public rather than telling them what they ought to drive. Those who have been listening have been fewer and fewer and GM share of the market has gone from 60 to 20 percent in three decades.

No doubt, this is a revolution in the making. A not-so-silent revolution that would be officially approved by the establishment in order to save some 2.5 job loss and limit the downturn of the USA economy.

Indeed – like it or not – the move makes a lot of sense. Dramatically so.

It would cost the American administration and economy much more not to do it. Of course, this challenges the free market dogma with the American “socialisation” of such a key industry.

This is just a spectacular and widely publicised development of the unprecedented crisis that is effective the car industry around the world but primarily in the USA and Europe. In other regions such as Brazil, Russia, India and China (the famous BRIC nations) sales of new cars are no longer going up as quickly as they have used to do through the recent months but are not falling so dramatically as in the USA and most of the European countries.

The recent development in the USA is going to be beneficial for the European and (likely) the Japanese car companies that have now good reasons to ask for greater and faster help from their governments as well. “To operate on even conditions”, they say. What does it means and how the situation will develop is perhaps too soon to say but this is not the first time the car industry (and the economy at large) is confronted with a major crisis. Yet, never before, the crises has appeared to be so deep and long lasting, that outlining a future scenario is virtually impossible. Perhaps this time the government rescue effort will come with stringiest conditions and a long-term strategy.

Chances, challenges and hope for the short, medium and long term.

Every coin as its reverse and in the worst circumstances the best thing to do is perhaps to look at that reverse and look for opportunities. This is a time for opportunities and Sergio Marchionne, CEO of the Fiat Spa Group and of Fiat Group Automobiles has been the first, a couple of days ago, to publicly voice, it is time a real change. As we shall see in a moment.

My opinion, as a car buyer and the man in the street, here is what I hope the car industry will do.

First: reduce the damage, tighten the belt and resist until better times come. Do not fire your workers, keep them on idle, cut stock without de-stabilizing selling prices. Perhaps reduce all of them at a level that can be maintained in the long term. One way or the other they are doing it – or part of it – right now.

Second: get ready – or not too late – for the opportunities when the spiral changes direction and goes up again, by creating the radically new scenario of the future.

Third: take the opportunity to reconsider everything and be part of the change.

This is – in my opinion – what virtually all companies should be (and probably are)  considering. With the help or the “suggestions” of governments with a vision and a long term strategy.

Most likely, this is the time when the entire world will re-think the entire issue of mobility and individual transportation, of the resources, of the energy we are putting in the production, use and disposal of cars, and their fuel. If we love cars and free individual mobility we need to change pattern, less and smaller cars on the roads will give us better chances to enjoy then we drive. And we need the chance of choosing when driving our own cars or sharing other means of transportation. A chance many North-American and more do not have.

We all know, it is a long and complex story, but it has start somewhere.

For the time being let me try to outline the first phase, that is let us look of what is going on right now.

NEED AND MOOD FOR SIMPLICITY AND NO MORE GROWTH.

In my opinion, what we are looking at is the end of the economic cycle established and developed after the WWII based on continuous growth. Growth being limited this might the time for a radical re-thinking of the western-style economic system that will inevitably affect the car industry.

The crises exploded and became dramatic when the world financial system collapsed but it has been coming years and months before. At least in Old-Europe.

The consumer bubble stimulated by obsessive marketing pressure in the past years eventually started a sentiment among the buying public that it was all too much and that perhaps happiness is in “less rather than more” of everything. This might well explain the success of small/smaller, luxury car such as the Fiat 500 and Minis, of low-cost but dignified cars such as the Dacias and why more and more people rides bicycles when the conditions allow it.

  

The sharp and dramatic increases in oil-price in the middle-part of the year has re-established and consolidated a concern for the need to preserve energy and cut oil consumption, not only to save money but to react to the arrogance of the oil industry.

Individuals and institutions have realised that they have no control on the price of oil and that the market can be easily manipulated, the industry and the economy at large disrupted in months or weeks. Banks and financial institutions are going to get – hopefully – more stringiest legislation and controls but who is going to tell oil-producing nations and oil companies they have to behave properly?

The only way to reduce the impact of the oil industry on our life and economy is to become less and less dependent on oil through reduced energy consumption and alternative sources. No matter what the oil price is.

The dramatic credit crunch after the flop of the financial system has eventually completed the range of motivations for the mainstream car buyer to change his behaviour. A great number of European car buyers have decided to keep their car for a longer period of time rather than changing just for the sake of it.

Cars have not been progressing much in recent years and a new car is not much better that the one being replaced. When they need to replace it, they tend to buy a smaller car or at least one with better fuel economy and for an attractive price. Actually, a strong reason to replace a car is to cut fuel consumption and the money spent at the gasoline station.

It is not without significance the decision of the VW Group to re-start production of their light and efficient A2: they had today’s car of the future ten year ago but it was too early and they had to stop production.

BMW CEO Norbert Reithofer said the auto industry is undergoing the worst crisis in 60 years and commented: “this surpasses everything that we have seen until now”. On its turn, Volkswagen CEO Martin Winterkorn agrees. “We have never experienced a drama of this kind”, he said.

The first to speak along these lines is Sergio Marchionne, CEO of the Fiat Spa conglomerate and of Fiat Group Automobiles. In a recent interview to the authoritative Automotive News.

Marchionne made a series of illuminating statements such as:

1.                  «I have totally revised what I will do in the first part of 2009. We are just going to slam the brakes on, use as many temporary layoffs as needed, cut everything back to essentials. I am going to have one week of production between now and the beginning of January. After that we are in the dark because I have no idea what demand will be. None.».

2.                  «We need to bring people around the table and say: “Look guys, the party is over. Somebody called our bluff and we are not all going to make it so let us fix it. It may be painful. It may be ugly. But if we want to do the right thing for this industry, let’s do it now.»

3.                  «We need to bring some sense to this industry. The only thing you have to do is look at a chart that shows how much value we have collectively destroyed over the last 20 years. In every normal world, in every industry, if you saw a chart like that the very first thing you would say is: “Give me the names of the guys who did this! I want them all out.” However, we are still here. We need to get smart and fix it. Otherwise others will do it for us.»

I hope many industry leaders share Marchionne’s views and keep his statements in mind.