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THE BIG RESTRUCTURE FASHION VICTIM GM has put its Hummer brand on the block after sales fell 40% in the last year

rom the top floors of their headquarters in Detroit and Tokyo, Stuttgart and Wolfsburg, the leaders of the global car industry can see two layers of thick, black cloud. The first is the general downturn that has hurt sales in virtually every market, including the emerging economies that until now have compensated for flat sales in Europe and America. But even when this cloud finally lifts, they’ll be left in the gloom of the second: high fuel prices, rising demand for oil and dwindling supplies.

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We’ve been here before, of course. The oil crisis of the early 70s prompted the carmakers to rethink their ranges and gave a leg-up to the nascent Japanese car industry with its affordable, economical products. When oil prices fell again, the carmakers fell back into bad habits. But most experts seem to agree that it’s different this time, and that the car industry that emerges from the current double threat will be permanently changed, even if fuel prices fall. “The price of oil is not the whole story here,” says Martin Eberhard, electric car pioneer, founder of Tesla Motors and now entrepreneur-in-residence, specialising in clean-tech, at venture-capital firm Mayfield. “It definitely hurts when you go to the pump in your Hummer, but people are buying Priuses and good gas-mileage cars and looking at electric cars, not to save money but to do the right thing... That’s what will give electric cars the edge, even if OPEC gets its act together and gets the price of oil down.” Before these new technologies come to market – and as we’ll see, they’re not far off – the carmakers are taking radical steps to reshape their businesses. The European carmakers are less exposed than the Americans. European cars are typically smaller and more economical, their sales less affected by fuel prices. America’s traditional mass-market, large-engined cars, pick-ups and SUVs have been hit hard by both the credit crunch and high oil prices. These models are where the US manufacturers make most of their profit, and slumping sales have made their dire financials look even worse. Full-size pick-up truck sales are down a quarter on the same

period last year. General Motors posted a $15.5bn (€10.5bn) loss in the second quarter of 2008. Things are so bad it tried to put a positive spin on its August sales figures: they were down an eye-watering 24.5%, but one GM executive pointed out that it was at least an improvement on the 27% slump in the previous month. “Americans aren’t shunning cars,” says Adam Jonas, automotive industry analyst at Morgan Stanley, “but the way cars are used and propelled is changing. The US car fleet

IF THE US CARMAKERS SURVIVE THEY’LL DO IT BY MAKING THEIR CARS MORE EUROPEAN needs to look a lot more like the European car fleet, and the industry needs to completely retool. If the US carmakers survive the next 12 months, we predict they’ll thrive, but they’ll do it by making their cars look a lot more European.” That survival is by no means guaranteed. The longer the downturn, the more likely the big US carmakers are to run out of cash. The tighter the squeeze on credit, the harder it becomes for them to raise funds with their poor credit ratings, in turn making it harder to commit to the capital investment needed to shift their product portfolios. They are pinning their hopes on at least $25bn (€17bn) NOVEMBER 2008 I CNBC EUROPEAN BUSINESS 43

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9/10/08 09:28:53


40-42 Death Suv