Car industry: who will be the real losers?
The car industry is one of the sectors most hurt by the corona crisis. But even in a crisis like this, never experienced before, there are losers and big losers. Who are they, who is suffering a lot, who is limiting the damage?
When we look at the March registrations in Europe, there were big losers like FCA (-77%), PSA (-68%), Ford (-65%), or Renault (-40%). But there were others, limiting the damage to ±40%, like Toyota, the Hyundai Group, BMW, or Daimler.
And then you have the special ones. They even scored positively in the first quarter of the year, like Tesla (+2%), Lexus (+2%°), Porsche (+26%), and even DS (+25%). In the other big two car markets of the world, the situation is comparable.
China and the US
In China, the crisis came earlier, and the market is now recovering. Some brands like Audi, BMW, Mercedes, and Toyota are recovering better. Others, like Nissan, GM, or Honda, are suffering more. The French brands are in horrible condition.
In the States, we see the same evolution. The manufacturers that are limiting the damage are (again) BMW, Daimler, the Hyundai Group, and Toyota. The American manufacturers of pickups are also less impacted: rural America is less confined.
The manufacturers who are doing better are those with a premium offer, or those who have a powerful industrial organization, like Toyota or Hyundai/Kia, with a presence all over the world, and a broad offer of models and propulsion types.
Cash is the key
But April may be the month of the recovery in China, in the US and especially in Europe, it’s the most disastrous month ever. To survive, you need money, and you need to have a long breath.
“Everything depends on the amount of cash you have available,” says Laurent Petizon from counselor AlixPartners. “The manufacturers with a pile of cash have better perspectives. Crucial is the break-even point (the number of cars to be sold to start to earn money) and the budget control (expenses and investments).
Some are better placed here. You have the giants like Toyota and Volkswagen (despite dieselgate). Still, also PSA, turned into a cash machine by CEO Carlos Tavares thanks to a rigorous expense discipline last five years.
Others are more vulnerable, like Renault, all are trying to get their break-even point as low as possible. “There is no immediate danger for the bigger manufacturers,” Bertrand Rakoto of DuckerFrontier (Detroit) says appeasingly.
“In the US, the industry is in far better shape than ten years ago, and if cash is the problem, the banks are there to provide it.” Many manufacturers have already opened new credit lines of tens of billions of dollars.
An essential asset is to be present in all markets. “Who is present in China has suffered a lot in February but sees a recovery now,” says market expert Matt Gasnier. “In March, there were already 1,4 million cars sold in China, compared to 310 000 in February. The first signs for April are very positive.”
Big players in the Chinese market can benefit from this. Like Volkswagen, Toyota, but also GM, Honda, and Alliance member Nissan. Manufacturers who are very strong in only one (big) market, like Suzuki (India), PSA (Europe), or Subaru (United States), are vulnerable if their market stays blocked for a more extended period.
From all sides in the industry, people are pleading to reintroduce a scrap incentive to boost sales after the crisis. Especially in Germany, the CEO’s of the all-important car industry are asking for it, for all sorts of cars, also the one functioning on fossil fuels.
But there is fierce opposition from environmental movements and other manufacturers. Hyundai Motor France CEO, Lionel French-Keogh, for example, has some hesitation to the idea because the state finances will already have been solicited by the health crisis.
“Furthermore, it pushes consumers toward small cars, encouraging the purchase of cars with meager margins, little VAT income, and that are not always the most environmentally friendly ones,” he adds.