Stricken carmakers stall at the crossroads of a radical future

As motor industry executives descend on Detroit this week for its annual motor show, the icy winds sweeping in off the Great Lakes will not be the only thing sending a sub-zero chill through their bones.

The 2019 North American International Auto Show (NAIAS), to give it its proper title, returns to the Motor City on Monday at what many believe is the most pivotal – and perhaps the most dangerous – period in the car industry’s history.

Experts are not mincing their words. “There’s going to be more change in the next 15 to 20 years than in the last 100 years,” said Prof David Bailey of Aston University.

According to Prof Karel Williams of the Manchester Business School: “The car as we know it may be on the edge of becoming history, the way that [photographic company] Kodak became history.”

Predictions aside, there is abundant evidence of a looming crisis. Around £100bn was wiped off the value of car firms last year, with the pain felt on production lines and in boardrooms around the world.

Last November, Detroit-based General Motors announced it was shedding 14,700 jobs and closing plants as it deals with flagging sales of saloon cars in a US market that many expect to slow in 2019 and 2020.

Only last week, Britain’s largest carmaker, Jaguar Land Rover, announced 4,500 job cuts, citing weakening demand in China and sliding diesel-vehicle sales in the wake of the Dieselgate emissions-rigging scandal.

The spectre of a no-deal Brexit also hangs over JLR and several other manufacturers with major operations in the UK.

On the same day as JLR’s announcement, Ford revealed it would be scaling down its European operations dramatically, having unwisely overexpanded. The cuts are expected to include 1,000 job losses in Bridgend – more than half the workforce at the carmaker’s engine factory in Wales.

Other, less structural, issues have further shaken the industry. The death of lionised former Fiat boss Sergio Marchionne piled personal grief on top of professional gloom in 2018. And when the head of the Renault-Nissan alliance, Carlos Ghosn, was arrested in Japan and charged with financial misconduct offences – which he denies – it showed that even a figure seen as superhuman in some circles could be suddenly toppled.

There could be more pain to follow – and in short order. An expected Chinese economic slowdown means that the engine of growth on which some companies have become reliant risks stalling. At the same time, President Trump’s apparent willingness to engage in bruising trade wars with Beijing offers yet another hazard for the industry.

But it is the long-term structural issues that cast the longest shadows. Electrification, autonomous vehicle development and the threat posed by ride-hailing services to personal vehicle sales pose challenges that not all companies will be able to meet.

According to Williams, the industry has seen nothing like this since Henry Ford’s Model T rolled off the production line in 1908. “In that [following] period, the US industry defined the idea of the people’s car – an internal combustion engine with a gearbox and so on,” he said.

“What happened after world war two was that the Europeans and Japanese downsized the model. But European cars like the VW Beetle, the Fiat 500, the Mini, would all have been recognised by Henry Ford. The real big thing is that the car, as Ford and General Motors invented it, is going to be reinvented with electrification and autonomy.”

As if to underscore this tectonic shift, major European brands including Audi, JLR, Mercedes-Benz and Mini have all dropped out of the Detroit show this year, turning their noses up at the city that gave birth to the industry.

From next year, the show will move to summer, perhaps mindful that the gala unveiling of shiny new models inside cavernous buildings protecting delegates from the Michigan cold is losing its lustre.

But the seasonal switch is unlikely to be enough to restore Detroit’s former glory, particularly with Silicon Valley becoming just as important to the industry’s future direction.

“It’s not at all clear that manufacturers whose expertise is in petrol and diesel vehicles are well placed to benefit from electric and autonomous vehicles,” said Williams. “The likely beneficiaries are the data companies, like Google, or mobility providers like Uber.”

Several carmakers have already cosied up to the tech giants as an insurance policy against a future in which personal vehicles take a back seat to a broader range of transport options. Toyota, the world’s largest carmaker by vehicle production, has poured $500m into a driverless car partnership with Uber, while Volvo also has a partnership with the company and JLR has unveiled a long-term tie-up with Waymo, part of Google’s parent company, Alphabet.

Driverless technology is not without its problems, including several fatal accidents. Polling, at least in the US, shows most drivers don’t yet trust autonomous cars, with 73% of American drivers saying they would be too afraid to ride in a fully self-driving vehicle.

That may create nagging doubts for an industry spending billions on robot vehicles, particularly given that investment is all the harder to sustain when sales of traditional vehicles are not holding up well. But most pundits are in little doubt about the ultimate direction of travel. Analysts at Citigroup think autonomous features will be standard in personal vehicles in the early 2020s, with services diversifying after that to include autonomous vehicle (AV) subscriptions.

“A lease payment for an AV subscriber would include use of the car plus insurance and maintenance,” the analysts write. “In addition to extra AV safety features on this car, the car will drive itself to get services in the middle of the night, or a new car with enough seats to pick up the whole family at the airport can be sent to your house overnight.”

Ultimately, Citigroup’s analysts envisage a global “Robotaxi” market with an enterprise value of some $1tn.

Autonomous or not, the cars of the future will be powered by electricity. This poses yet another existential threat to industry players that do not manage the change well.

“China will become the centre for global electric vehicle production,” said Bailey. “Unless the industry transforms, large chunks of it could get wiped out. Renault-Nissan are well ahead and BMW has invested very heavily, then you have Tesla as a new entrant and firms such as JLR catching up.

“Those that are really lagging are companies such as Ford, which is well behind and is going into collaboration with Volkswagen, who are having to reorientate in the wake of Dieselgate.”

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