The economy is hurting and more and more carmakers are suffering. Not all are doing poorly, though. Audi, as an example reported record sales for 2008, with over 1,000,000 vehicles sold. Lamborghini, owned by the VW/Audi Group, also posted record sales for 2008. Both companies produce sports cars that retail at over US$100,000.

Let us examine the developments of the last month by automaker:

Porsche. There is no substitute for a strong economy. A poor economy negatively impacted sales at the sports car maker, and even a significantly revised 911 model did not save it from a virtual sales slump. Porsche is tighter with numbers than most companies, but while sales were slowing, the company hopes that new models in 2009 will help it combat slumping sales. A four-door car, the Panamera should hit showroom floors in the first half of 2009, while you can expect to drive a 2009 Boxster/Cayman with revised powertrain as soon as March.

In financial news the company announced the first week of January that they had bought an additional 8.16 per cent stake in VW worth 6.1bn Euro/US$8.2bn. Porsche now owns 50.76 per cent of VW Group but may gain further stake in VW, rising to 75 per cent in coming months (if all goes as planned).  In November, news came out that Germany’s upper house of parliament passed new laws regarding ownership of VW, despite European Commission rulings that such laws were illegal.

In November, the high profit-maker in the world gobbled up a stake, which sent hedge funds scrambled to recover from trading, which briefly left VW as the most valuable company in the world. Porsche’s finance team effectively practiced something called “cornering”. Let us not forget that Porsche is better as an investor than as a carmaker – though they are a damned good carmaker. In 2007, the company made 3.6 billion Euros on investments, and only a paltry 1 billion Euros on cars. At a 12 per cent profit margin, the decision to invest in VW stands financial positioning, and partly seeking a partner with whom to share technology development costs.

Still, everyone is watching the dollars and cents these days. Even Porsche has announced that is it pulling out of the American LeMans series for 2009 – in part. It is pulling the P2 team, but not pulling support for the 911 GT3 RSRs in the GT2 category.

Mercedes-Benz. Mercedes has finally announced the much-anticipated E-class for 2009. The new car replaces the round headlights with more rectangular ones, perhaps in the style of the C-class or a Lexus.

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Hardly a day goes by when an American automaker isn’t making an announcement that negatively impacts either the consumer or the workforce. Today was different. I would like to thank LeftLane News for bringing to focus a story about Ford, GM, and Chrysler. All three operations have seen what has historically been their respective worst years ever so far this decade. While decade isn’t over yet, it looks like they have “survived” the worst of it. But when we analyse the causes of this downfall of the Big 3, one place to look as at production.

Specifically, let’s look at the options list for the 2007 Ford Focus. According to Ford, the venerable Focus line had an astounding – wait for it – 100,000 different options combinations. 80% of sales came from just 4,000 or 4% of the available combinations. That means that 20% of sales required an extra retooling of 96,000 combinations. Talk about a money suck. And the problem got twice as bad when you went to the dealer because if you were a consumer smart enough to know what you wanted, you had the devil’s own job of getting exactly the car you wanted. That meant that Ford was forced to slash prices on vehicles sitting on the lot for not weeks, but MONTHS! The logistical headaches were more than enough reason for Ford to rethink how it produced and marketed its automobiles.
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The big news today was of course DaimlerChrysler has announced massive layoffs – 16% or 13,000 – of their total US workforce at the Chrysler division. One article here. The layoffs come as Chrysler division struggles to bring costs under control and at the same time roll out highly successful products. Of late, Daimler’s US brand has successfully rolled out well-designed products, some of which have certain cachet to American buyers. Still, they have struggled to find mass-market appeal in key vehicles such as the Chrysler Crossfire and the Aspen. Most successful has been the 300C. A large part of this success can attributed to the designers – and the customizers who seem to “pimp” nearly every Black 300C to hit the road. God knows they aren’t buying the car for the amazing handling and braking (perhaps the 300C is meant to be a drag racer).

To return to the main point, European manufacturers are looking to cut costs. Most notably the changes are affecting Peugeot. Both Renault and PSA Peugeot-Citroën have gone from strong product lineups a few years ago to abysmal performance today. Sales are off and both companies are working to improve. Renault with the key ownership of Nissan is in a much different position than Peugeot. 2006 results showed that Peugeot sales slipped .7% to 1,960,000 from 1,995,000 the year prior. In line with these results Peugeot axed the CEO at the beginning of the year and has installed former Airbus and Saint-Gobain executive Christian Streiff.

Unlike Nissan-Renault’s Carlos Ghosn, who seeks to develop broad global alliances, Streiff is seen as a master of cost cutting. It is widely speculated that such cost cutting could come in the form of plant closure in France, Spain, or the UK as noted by the Financial Times earlier this month. Streiff could take two different approaches or a hybrid. One option would be to sell or spin off certain parts of Peugeot’s vertically integrated infrastructure, thus freeing up cash flow and at the same time driving cost competition among suppliers. A second, less likely, approach would be to adopt the aforementioned alliance schematic that Ghosn has adopted at Nissan-Renault.

We will continue to research and write about this topic for future articles, but we would close by noting that the auto industry is nearly cyclical in nature. VW with its governance problems, and Fiat with problems in every area, were considered in recent years to be quite poor off. VW has made a great comeback with 9.3% sales increase and Fiat’s turn around is also worth noting. Bottom-line is that the French automakers may be a bit down, but they are certainly not out.

Sources: Financial Times, January 9, 2007.
Examples of the latest Peugeot

Change is afoot in corporate offices in Europe’s automakers. GM and Ford have struggled for many years now with the harsh realities of the global auto market. Now those realities are knocking on the doors of the European automakers. About two-thirds of Western Europe’s carmakers have seen changes in the executive suite in the last two years.

The reasons vary, e.g. BMW’s Helmut Panke left due to age restrictions, yet the BMW board failed to grant him a waive to allow him to drive the ultimate machine longer. The fact remains though that boardrooms and shareholders, alike, are concerned about increasing competition from the Far East.

Once a joke to respectable manufacturers, the Chinese automakers – led by Shanghai Automotive Industry Corporation (SAIC) and Nanjing Automobile – are increasingly competitive. The Chinese are increasingly developing more and more sophisticated facilities and borrowing more and more from the Europeans. Take American Axle and Manufacturing. AAM has been setting up new factories at breakneck pace. Indeed some of the intellectual property has been sold to the Chinese as well.

What all of this means is that the Chinese now have a way to produce good quality cars, yet sell them for next to nothing. Therein lies the problem not just for Renault and Peugeot and VW. Mercedes-Benz and BMW must be careful in their strategies since companies like Chery, is planning to bring their “luxury” automotives to the U.S. market soon. At $20,000 Mercedes and BMW are tracking the company, you can be sure. In the end, automakers will find difficulty in beating the Chinese on price. They must find other ways or they will falter as Ford and GM have done.

The next part in this topic will deal with possible strategies that the European automakers might develop to combat the competition from the east.