Auto repair: emerging markets are key to car firms' recovery. Scott Payton reports on a formerly nationalistic sector now chasing global alliances and buyers.

Author:Payton, Scott
Position:Industry overview
 
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No sector outside financial services was hit as heavily by the global recession as the automotive industry. "A couple of months after the fall of Lehman Brothers in September 2008, car sales were down by 25 percent worldwide. This was unprecedented," says Paul Newton, research manager for the automotive group at industry analyst IHS Global Insight.

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As auto giants closed their plants for days on end, governments across the globe stepped in with both direct and indirect support. "The US and French administrations provided financial bail-outs, with the latter pumping [euro]6bn [[pounds sterling]5bn] into Renault and PSA Peugeot Citroen," Newton says. "The French government lent a lot of money to domestic car makers' in-house credit houses, since credit for vehicle financing had also dried up."

Many governments, including those in China, Germany and the UK, also launched scrappage schemes offering consumers cash to trade in old vehicles. Germany's scheme was the most generous, offering owners of cars aged over nine years old [euro]2,500 to swap them for a new model.

"The industry was deemed too big to fail," says Nikolaus Soellner, head of the automobile practice for AT Kearney in Europe. "It employs huge numbers of people and for every person working directly in the auto industry, ten others' jobs rely on it indirectly,"

So are car firms now seeing a recovery--and what trends are their FDs watching to ensure they thrive in the post-recession economy? The first answer is yes. According to Newton, sales have rebounded more strongly than predicted. The seven months to May 2010 saw consecutive double-digit year-on-year growth worldwide, say researchers at investment bank Scotia Capital.

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"Our sales in this country are up 40 per cent on last year," says Lance Bradley, UK managing director of Mitsubishi Motors. "Our new crossover vehicle, the ASX, is selling like hot cakes across Europe, too."

In the US, Ford, the only big American car maker to avoid the ignominy of Chapter 11 in 2009, posted a $2.6bn ([pounds sterling]1.7bn) profit for the second quarter of 2010, exceeding analysts' expectations. "The US economy is recovering in a sustainable way, but it's doing so very slowly," says Lewis Booth FCMA, CFO of the 97-year-old company. "Economies in parts of Asia are in the rapid growth stage, while South America has weathered the storm extremely well. We expect to see continued strong growth in Brazil especially."

But the picture is not all rosy. Massive government support and a faster-than-expected industry upturn may have saved a number of giants from the scrapheap, but this has also disguised underlying long-term challenges, says Soellner. The first is shifting demand. "Customers' attitudes are changing massively," he reports. "They want their cars greener, cheaper and smaller."

Car makers are well aware of this. "Three years ago, when a customer asked about a car, their first questions were: 'How fast and how powerful is it?'" Bradley says. "Today, their first questions are: 'What's its road-tax band and how fuel-efficient is it?' So we are changing our range to focus on smaller, lighter, more fuel-efficient, lower-emitting vehicles."

Soellner reports that demand...

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