Just six months ago, the industry was focused on rising oil prices, emissions control and the price of steel. Market projections had noted slowdowns in some sectors but were generally optimistic in tone.
Today, that seems like another world. As global stock markets plunge and consumer confidence dips to historic lows, light vehicle sales in almost all regions continue to slide. For the mature markets, especially in the U.S. and Western Europe, the decline in sales has been particularly sharp. Major factors for this decline include a lack of cash and financing sources, placing severe pressure on suppliers and dealers in particular. This situation, in turn, increases the risk to Original Equipment Manufacturers (OEMs) that suppliers may fail and production may have to stop. With credit increasingly more expensive and difficult to get, these financial tensions will likely continue to affect the entire industry — from consumers of the end product to dealers, OEMs and suppliers.
U.S. sales for most carmakers have declined by double digits. General Motors sales are down 16 percent, Toyota 32 percent and Ford 34 percent. Even Honda, a strong performer in the U.S. for the past several years, reported a 23 percent drop
In Europe, September car sales decreased by 8.2 percent, despite two extra working days during what is usually a strong buying season. The steepest declines were noted in the U.K. and Spain. During October, sales in Spain fell another 40 percent. Global automotive sales, even in traditionally strong markets such as China, have seen slowing growth rates or even declines.
One of the main reasons for the current downturn is an industry-wide credit crunch. Loan defaults are increasing, and many banks and finance companies, especially in the U.S. and Europe, are becoming much more rigorous in approving car loans.
In the third quarter of 2008, Wells Fargo cut its US$25 billion auto loan Commercial vehicle sales portfolio by almost 25 percent as it Units sold (in thousands) Percentage change (08–07) declined to give riskier loans. Capital One cut back its volume of car loans by more than 50 percent in the third quarter of 2008. GMAC Financial Services tightened its rules governing loan sanction. In fact, many dealers 200 estimate that 60 percent of the customers who buy GM cars will not qualify for loans under the new rules.
With declining sales and a virtually frozen credit market, it should come as no surprise that all of Europe’s main carmakers have announced a string of production or staff cuts that are affecting plants across the continent. Additionally, Daimler has stated that it is giving up its Sterling truck brand and drastically reduced production capacity in its North American truck operation. Volvo is expected to cut jobs by 4,000 and its production by about 20,000 vehicles to account for slower sales this year. On October 23, Chrysler announced that it would downsize its white-collar workforce by approximately 25 percent, or almost 5,000 jobs in the U.S. Toyota sharply lowered its global automobile production plans for 2008 by 350,000.
Last year, KPMG automotive professionals observed that 25 percent of auto suppliers were in some sort of financial trouble, and now that figure has increased with the severe tightening of credit. Since approximately 80 percent of an automobile is manufactured by suppliers, the financial pressures on suppliers will affect the entire supply chain.
Many suppliers might have to divest some of their assets to maintain cash flow. Tier Two or Tier Three suppliers might be acquired by Tier One suppliers, or Tier One suppliers might be acquired by OEMs that want to invest in key parts of their supply chains to safeguard ongoing production. In any case, the overall situation for suppliers will likely not improve in the immediate future, especially in the face of dramatically reduced demand.
Dealers face equally serious issues. Shares for Inchcape, the international car dealership, plummeted when the company outlined plans for job cuts and warned that 2009 profits would be 'significantly lower' than expectations. In the U.S., the combination of the credit crisis and high gasoline prices has discouraged sales of heavy trucks and sports utility vehicles (SUVs), thereby forcing many automotive dealers in the U.S. to close down. Lower loan approval rates — from 83 percent last year to 63 percent this year — further aggravate the crisis.
