It is hard to believe the unprecedented changes that have swept across the global automotive industry in recent weeks and months.
Who would have thought a year ago Chrysler would have been through a Chapter 11 restructuring, and would now be run by Fiat, and General Motors (GM) would also have filed for Chapter 11. Chapter 11 allows them to leave behind much of their legacy costs and make their operations leaner and cost-effective, but will making a smaller organisation guarantee survival?
All vehicle manufacturers need to deliver products which appeal to consumers and generate increased sales to survive. Only time will tell if the “New Chrysler” and “New GM” will do that.
This side of the Atlantic, there are a number of bids on the table for GM’s European-based businesses. Saab is in the process of being sold to Swedish luxury sports car manufacturer Koenigsegg. Magma, backed by Russian investors, are the preferred bidders to take a major stake in GM Europe’s Vauxhall and Opel brands, although alternative bids are being sought, with one expected from a Chinese manufacturer.
Whatever bid is ultimately successful, a close eye will be kept on how the sale impacts manufacturing facilities in the UK and mainland Europe.
But let’s not forget how all of this is affecting the supply chain, both in the US and Europe. There have been projections as much as half of the US component suppliers will file for Chapter 11 or fail outright. A few weeks ago two large US suppliers filed for Chapter 11 and the industry took it in its stride, so used have we become to this kind of news. In Europe, the industry was in stronger financial health entering the slowdown and the market downturn has been less dramatic, so it has been able to ride the storm better so far. Indeed, June car sales across Europe as a whole were up in June, due in part to scrappage schemes in major markets, notably Germany. This does not, however, preclude manufacturers and suppliers from feeling significant financial distress.
Porsche is seeking outside investment from the Middle East, and BMW and Mercedes are said to be collaborating on platform and drive change. These developments would have been unheard of a year ago. It’s been a tough year for the automotive sector worldwide and it is difficult to predict how the industry will restructure itself from one month to the next. What we can be sure of though is that by the end of the downturn the face of industry will have changed beyond anyone’s wildest predictions.
Eric Wallbank is the Birmingham-based head of Ernst & Young’s automotive team