Following a turbulent 2008 which saw lower revenues, lower profits, and bankruptcies in the automotive industry, PricewaterhouseCoopers Canada (PwC) reported in a press release issued in Janau, that many manufacturers are faced with an equally bleak year ahead.
PwC Canada Automotive and Industrials Practices leader Dean Mullet noted, "In turbulent times, where survival of even the largest players is at stake, only one thing is certain, all parties, from automakers to suppliers to dealers, will have to undertake aggressive restructuring to adapt to the new realities. The winners will be those which manage the downturn in an appropriate manner, controlling cash and eliminating unnecessary expenditures to weather the current economic downturn."
CSM Worldwide has reported that worldwide vehicles sales have fallen 5% year-on-year through 2008. Limited credit and weak demand means that likely forecasts for the automotive industry are that the sales slump will worsen in 2009, with volumes falling a further 8%. The fall in sales has been attributed to the rise in the price of oil, the acceleration of the credit crisis and the subsequent constriction of consumers who are deferring buying until confidence is restored.
Cautious, disciplined monetary and fiscal policies and appropriately regulated financial institutions and markets have allowed South Africa to weather the crisis relatively well, however, the knock-on effect of the global crisis is becoming more evident in the local automotive industry.
The National Association of Automobile Manufacturers of South Africa reports that the South African automotive industry saw a decline of 21,1% in aggregate terms of new vehicle sales in 2008 and expectations are that the number of vehicles likely to be exported during 2009 could decline by about 27,5%.
Motoring SA has reported that the South African importer of Chinese-built Geely cars has gone into liquidation. This follows the recent exit of the Spanish Seat and the Chinese Meiya brands. Volkswagen South Africa (VWSA) stopped selling the Seat because the importation of the brand into the local market was no longer viable in the current business environment.
Combined Motor Holdings has significantly scaled down its Mandarin Motor operations which sell the Soyat vehicles, and vehicle manufacturer VWSA is preparing to release up to 400 employees in a process of voluntary separation.
VWSA will also close all its production areas in the last week of February, as well as during the weeks before and after the Easter weekend, in April, as previously reported by Engineering News. Mercedes-Benz South Africa have reduced production at its East London plant and plans to conduct a review of employee structures, in a bid to further reduce costs.
However, the hardest hit by the global economic slowdown and the financial market turmoil has been vehicle manufacturers in the US and Europe.
PwC reported that light vehicle sales in the US are at their lowest per capita in nearly 50 years and cash-strapped manufacturers are relying on billions in Federal loans to maintain operations. The US government threw a $17,4-billion lifeline to its automotive firms. However, Washington set a deadline of March 31 for companies to prove they can restructure suffieciently to ensure their survival, or have their loans recalled.
Canada approved $3,3-billion in emergency loans to the Canadian arms of Detroit's ailing automakers to keep it operating while it restructures its businesses. The country further announced two new federal measures to support the overall industry. The one to benefit automotive suppliers and the other to help consumers get credit to buy vehicles.
Analysts feel that a lack of confidence in personal finances and increased unemployment could see consumer sentiment hitting a 20-year low in 2009. However, expectations are that North America will show the sharpest gains in 2010, rebounding by 15,2%.
The slump in demand for new cars in Europe has caused the region's biggest annual fall with orders falling by 15,1% year-on-year in October last year and several companies announced temporary cuts in production to cope with falling sales. Governments have had to step in to protect their ailing automotive industries.
The French government handed out a low-interest loan programme for its automotive industry. The German government offered a €1,5-billion support package for its auto industry in an effort to assist car makers. Germany guaranteed a portion of this loan to Opel to help out the struggling automaker. The British government took steps to provide financial assistance to Jaguar and Land Rover, and Russia raised tariffs on imported cars, in an effort to protect its domestic car industry.
If Western Europe's fall in sales is sustained into 2009, 2009 sales will be the lowest experienced since 1993. It is anticipated that sales will fall around 12% in 2009 without a noticeable recovery until mid-2010. Analysts foresee a slight recovery of only 2,3% for 2010, as 2009 Gross Domestic Product growth falls in key markets. The ongoing uncertainty regarding Carbon Dioxide (CO2) taxation by the European Commission is cited as causing potential new car buyers to stay on the sidelines.
Asia is expected to face similar difficulties as those of North America and Europe as sales decline. Japanese and Korean sales are down a combined 5%. Only China is forecast to experience an increase of 4,5% in sales, with continued growth in 2009, but slower than originally anticipated. PricewaterhouseCoopers reported that the Indian market is suffering from a lack of automotive financing, and with nearly 75% of vehicle purchases being made on credit, the lack of financing is having a negative impact on sales. November's passenger vehicles sales declined by 27%, compared with 2007.
Asian governments are also stepping in to assist domestic auto manufacturers. Japan approved an extra ¥4,79-trillion to help finance two spending packages totalling ¥10-trillion. However, Japanese car manufacturers continue to scale back production. A Chinese government-affiliated financial institution extended loans to one of the country's leading automakers, Chery Automobile. The Chinese government is cutting taxes and subsidiaries to boost its automotive industry. The government has reduced sales tax on the purchases of cars with engine sizes smaller than 1,6l to 5%. The government will also give a one-off cash subsidy to owners of high-emission vehicles who trade them in for new more fuel-efficient and cleaner ones. These policies are aimed to boost sales.
Brazil, which accounts for over 75% of the South American light vehicle production posted sales growth for the first nine months in 2008, with sales slowing down at the end of the year, as the effect of the global financial crisis spread to Brazil. Sales rebounded slightly when government released $3,6-billion to Sate banks for auto loans and reduced taxes on consumer loans. However, this initiative is scheduled to end in March 2009 which could see a drop in sales.
Africa and the Middle East
For Africa and the Middle East, analysts are predicting a combined 5% increase in sales, as potential for growth still exists.
Market expectations are that global light vehicle sales are to bottom out in 2009 and to begin to recover in 2010 as the credit burden lightens and consumers who have been avoiding replacing their vehicles re-enter the market.