|

Will Europeans pass Japan in a post-GM global auto market?

by Jochen Legewie

As GM’s government-imposed deadline approaches Monday, it is highly likely the automaker that once dominated the global market will file for bankruptcy protection just like Chrysler did a few weeks ago.

Last year, Toyota overtook GM to become the world’s largest automaker, and its rise to the top seemed unstoppable. Japan appeared to be No. 1 again, at least in one industry.

But the automobile world looks totally different than it did six months ago. Toyota has announced a record net loss of more than ¥430 billion for fiscal 2008 and is projecting a ¥550 billion net loss this year.

Toyota is not the only one suffering. Nissan, once the darling of the stock market, has gone into the red for the first time since Carlos Ghosn took charge. Only Honda and Suzuki ended fiscal 2008 with net profits.

Even in the United States, Toyota suddenly appears vulnerable. Production and sales organizations need to be consolidated. Lexus, its luxury brand, finally lost its title as the most reliable make in J.D. Power’s customer satisfaction rankings for the first time in 15 years, falling behind the likes of Buick and Jaguar.

Meanwhile, in Europe, two major players — Fiat and the Volkswagen Group — are making headlines, but not for the same reasons as their Japanese or American peers. Ridiculed and nearly bankrupt only five years ago, Fiat has re-emerged under the regime of CEO Sergio Marchionne. The company has taken a stake in Chrysler and is also bidding for one in Opel, the German GM daughter that’s looking for a white knight.

But Fiat’s plans don’t stop there; they are also after GM’s business in Latin America. If all of these acquisitions succeeded, Fiat would become the world’s No. 2 auto manufacturer.

As for VW, this is another company that has rebounded from difficulties, fighting off a takeover attempt last year by Porsche, its largest shareholder. In April, VW made headlines when its Golf VI was selected World Car of the Year in New York.

But its new Polo concept car, unveiled a month earlier at the Geneva Motor Show, was probably even more important in the global competition for eco-supremacy. The Polo wowed the audience with a remarkable fuel efficiency of 30.3 km per liter. This is far better than Toyota’s Prius and even drew praise from the Nikkei, which said such a vehicle could knock Toyota and Honda off their green-technology thrones.

So are we witnessing the arrival of an era dominated by European automakers, or will the old regime continue to hold court? The answer is a clear neither-nor.

Let’s make a quick assessment of the players by market.

North America: Ford is the only maker likely to avoid the fate of Chrysler and GM, but it will struggle for its future; only optimistic observers believe it will return to profitability in 2010. Clearly, U.S. dominance of the automotive world is over.

Japan: Japan’s automakers are struggling, but not quite as badly as the Americans. Indeed, some of them might come back stronger in the near future. There is no doubt Toyota is great position with its high technologies, deep pockets and global market presence.

While Honda might have pulled out of Formula One, it also won the 2009 World Car of the Year award for cleanest car with a fuel-cell vehicle — the Honda Clarity FCX. The company’s success with the recently launched Insight, Honda’s first hybrid to top the domestic sales rankings, was also noteworthy.

The third remarkable auto force in Nippon is Suzuki. Not only did it manage a net profit last year, but it also appears well-positioned to weather the storm and tap future demand, thanks to its focus on small cars and its presence in India.

Europe: In this region, the picture is more complex. Apart from Fiat and Volkswagen, the German automakers seem to have an edge over their competitors, especially the French. The technological power and premium image of Daimler, BMW and Audi constitute strengths that cannot be easily destroyed by a financial crisis.

In addition, BMW benefits from having the Quandt family as a strong shareholder, as Audi benefits from its links to powerhouse Volkswagen. And even Daimler won some breathing space on March 22, when Abu Dhabi’s Aabar became a new major shareholder.

What about the emerging economies of China and India?

China: The Chinese market is on track to sell more than 10 million units this year and will possibly surpass the American market to become the global No. 1. But the country still lacks one or two automakers that can make global headlines. Such companies will likely arrive, eventually, but it will take a few more years.

India: Tata is different. With the Nano, the first car to sell for less than $2,500, they have made headlines and already received 203,000 orders. If Tata is to weather the financial storm well, it will have to become a new force in autos.

South Korea: Hyundai of South Korea meanwhile is already a global force but still lags in top technologies, especially “green” cars.

Summing up, it looks as if the Japanese and German makers still have the global edge and will keep it for years to come, if only for their undisputed lead in technology. But demand is a different story, because it takes place outside of Germany and Japan. With China, India — and probably Russia — emerging as major markets, Germany and its makers will benefit from a large European hinterland that includes Eastern Europe.

Here in Japan, however, the story is different. Interest in cars is rapidly declining. The Tokyo Motor Show in October is struggling to attract exhibitors from overseas while China’s appeal continuously grows. Japanese auto makers clearly need a business model that doesn’t rely only on a strong home market and a few key technologies, like hybrids.

Global competitors are quickly catching up and already leading in some areas. The fact that these rivals come from both Europe and Asia — and no longer from the U.S. — is a new twist that makes the situation harder to predict than ever before.

Jochen Legewie is president of German communications consultancy CNC Japan K.K.