The automotive industry is in a difficult situation and the managements of major manufacturers openly express their concerns. Car sales are declining and profits are under pressure due to the Brexit and the trade dispute between the United States and China. At the same time, major investments are needed to keep up with the race for electric mobility and autonomous driving. How does this end?
Volkswagen CEO Herbert Diess didn't say anything last week. According to the CEO, the current state of affairs within the automotive industry can "disrupt" the world economy considerably, a prospect that instills Diess's "fear".
The Brexit in particular and the trade dispute between the United States and China are major disruptors for manufacturers, mainly due to the uncertainty that comes with it. 'Jammers', because both developments are totally unnecessary for the top people in the car industry.
Given the impact that a hard Brexit can have, PSA CEO Carlos Tavares also spoke of an ethically "unacceptable" threat. PSA is the parent company of Citroën, DS, Opel and Peugeot. According to Tavares, politics must let "common sense" prevail.
Diess went the extra mile by saying that when a recession occurs in the medium or long term, it would be a "self-caused recession".
Volkswagen CEO Diess, here at the unveiling of ID.3, is worried. (Photo: Carscoops)
All problems at the same time
Renault CEO Thierry Bolloré also sought publicity last week. In an interview with the German Handelsblatt , he warned of a crisis in the sector.
"The problem is that problems are now coming at us simultaneously," he said, referring not only to the conflicts mentioned, but also to issues such as sanctions against Iran, Russia and the economic downturn in Argentina.
Many brands are already seeing the effects of the economic headwind in the books, resulting in lower profits in times when investments are required. Ford's credit rating was lowered to " junk " by Moody's Investors Service last week. The credit rating agency expects little to no improvement in the coming two years.
Ford expects a lot from plug-in hybrid models such as this Kuga. (Photo: Ford)
Chances of bankruptcies are increasing
If the brands are not doing so well, the suppliers also feel it in their wallets. The German Continental's profit was 41 percent lower last quarter. ZF issued a profit warning and Bosch is also counting on stagnation.
In a press release last week, credit insurer Atradius warned of a higher risk of bankruptcies in the automotive industry, with payment risks as a result. In Germany, the risk of non-payment would now again be as high as during the economic crisis of more than ten years ago.
According to the insurer, the neighboring country suffers the most from the trade dispute between the United States and China. For example, BMW is building the X3, X4, X5, X6, and X7 in the US that are also sold in China. The GLE and GLS SUVs from Mercedes-Benz also leave the band in the US before they are transported to China.
This Mercedes-Benz GLE must be shipped from the US to China. (Photo: Daimler)
Cooperation required to reduce costs
Many manufacturers are therefore looking for cooperation and scaling up to deal with the problems. A few years ago, PSA took over Opel from GM, while Ford and Volkswagen announced earlier this year that they would expand their cooperation. For example, Ford will use the MEB platform for electric cars from Volkswagen.
As part of the plans, Volkswagen is also investing 2.6 billion dollars (2.3 billion euros) in Argo AI, a company that develops technology for self-driving vehicles. Earlier, Ford invested nearly 900 million euros in the tech company. The common goal is to develop what manufacturers simply call the Self-Driving System (SDS).
To reduce costs, the competitors BMW and Mercedes-Benz also work together in the field of mobility services and autonomous driving.
See also: These are the biggest challenges for BMW
Electrification and mobility services offer opportunities
Ford expects that its electrified models in Europe will sell better in 2022 than the cars with a combustion engine. Renault also expects a lot from the partly and fully electric models, but it also does not reduce the growth potential of mobility services, on the contrary.
"For example, look at what you saw in aviation with the arrival of the price fighters. Ticket prices fell by an average of 20 percent, which increased the demand for travel by 40 percent. That can also happen with the demand for mobility solutions," said Renault CEO Bolloré.
Mobility services with shared cars can become a revenue model. (Photo: Renault)