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Difficult times facing global automotive industry

Alarm bells should be ringing throughout the world's automotive industry, says strategy consultants Autopolis – and it still thinks most carmakers are unprepared.

The boom years for the auto sector are over, says Autopolis, who carry out research for Ford, Volvo, Renault and VW, and it is now facing some of the most difficult conditions for decades.

The cause, says the firm, is the coming together of four critical factors. First, sales are falling around the world. Total vehicle sales are now expected to drop by 11% over the next two years, wiping the equivalent of Japan off the automotive map.

Second, many car makers are losing money and even the most profitable generate only measly returns. As sales slide many ar makers astarting to haemorrhage. Autopolis predicts few carmakers will be able to survive the turmoil without major damage.

The third factor is falling prices. Thanks to more open markets, more competition, legislation, discounts, incentives, currency movements and greater price transparency, margins are being squeezed even more. Carmakers, desperate to cover costs and fill factories, are continuing to cut prices – undermining their viability still further.

Finally, says Autopolis, the fourth major issue is capacity. There is still too much and more than a quarter of the world's car and truck plants are idle, despite record sales volumes in 1999 and 2000.

Vehicle sales in Western Europe are expected to drop from 16.9m in 1999 to 15.1m in 2002, according to Autoplois.

“The solution is to look beyond the next few years to identify the end-game,” says Graeme Maxton, an economist with the firm. “Then you need to work out how to get there.”

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