Facing a harsh truth

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At times as bad as these, it is important to keep a level head and, if you are a captain of our rapidly imploding industry, watch very carefully the words that come out of it. You can bet that, now more than ever, any words a senior executive might utter in public have been scrutinised in advance and in forensic detail to make absolutely sure they contain no hint of hyperbole, no suggestion of painting a picture worse than the distinctly unedifying one that now presents itself to us. So here for your perusal is a selection of just a few of these painstakingly thought out, ‘unalarmist’ and entirely considered comments coming out of the industry at the moment.

Volkswagen boss Martin Winterkorn claims “we have never before seen this kind of crisis”, while Toyota vice-president Mitsuo Kinoshita describes the current situation as “an emergency of a magnitude we have never seen before”. Mercedes-Benz boss Dieter Zetsche brings the historical perspective into painfully sharp focus by calling it “the worst crisis since World War Two” while his opposite number at BMW, Norbert Reithofer, feels no need to qualify it. He states simply that we’re looking at “the worst crisis BMW has faced in its history”. Given that BMW very nearly went bust 50 years ago, that’s some statement.

What is chilling about these comments is not the words so much as the companies they are attributed to. If that’s what blue-chip companies like VW, Toyota, Mercedes-Benz and BMW are saying in public, just imagine the conversations going on behind closed doors at Ford, GM and Chrysler right now.

What we know is this: Aston Martin has laid off a third of its workforce, Ford has put Volvo up for sale, General Motors is considering the sale of Saturn, Saab, Pontiac and Hummer, Jaguar/Land-Rover has gone cap in hand to the government and GM’s Rick Wagoner is warning of three million job losses in the US if the Big Three are not bailed out and the American auto industry collapses.

Even the catastrophic sales figures that plunge the industry into ever-deeper depths of despair when they’re published each month fail to reveal the true picture. The numbers tell us of the many companies that are 40, 50 and even 60 per cent down on sales for comparable months last year; what they don’t reveal is the transaction prices for those few new cars that are actually finding homes in the UK. As journalists we have largely anecdotal evidence which is not normally to be relied upon, but as every day turns up stories of large SUVs being sold for less than half price, supercars losing £30,000 the moment they’re driven out of the showroom and the most absurd deals being available on nearly new second-hand luxury saloons, there is undoubtedly truth in there somewhere.

It is tempting to resort to generalisations at a time like this, and revert to the oft-peddled assumption that this is a problem more perceived than real and all that’s happened is that confidence has fled the market. After all, as I write and hopefully as you read, oil is cheap once more, interest rates are on the ground and inflation is falling. Sadly it is not as simple as this. The unappetising fact is that almost all new cars these days are bought on credit, and there is no credit any more.

So what good news is there to brighten the darkness? Well, no one is yet suggesting that the survival of the big well-run German and Japanese companies is under threat: the strength of their balance sheets will get them through in the short and medium term, while the strength of their product will ensure that, when recovery comes, they will be in the vanguard. But even these players must accept that this is no savage but short blip. When the industry emerges blinking into the sunlight once more, it will be smaller, leaner and different in shape. What is happening now will change the cars we drive, our attitudes to them and the way we go about buying them forever.

And what of those companies in less enviable positions, not least the Detroit Three? It must be galling for those working in Ford and GM’s largely very well run and profitable divisions around the world in general, and in Europe in particular, seeing their parents in what some are predicting to be their death throes. The truth is that these companies are the architects of their own downfall. They have presumed the American public would always prefer a mediocre American car to a good Japanese one, and they won’t. They have presumed the world would never change, and it has, while unrealistic deals with unions and pension fund payments have strapped financial millstones around their necks. Of course the unions are now falling over themselves to help because their members have twigged that some job is better than no job, but time – and not very much of it – will tell whether their gestures amount to much more than throwing a cup of warm water on a blazing building. For what it may be worth, I cannot see the US Government letting either Ford or General Motors go to the wall. But Chrysler is by far the smallest and weakest of the trio and the political case for its survival much more shaky.

But if any of them is to survive not just the next few months, but long enough to recover, they must be reborn in a new image. The fact is that with remarkably few exceptions, American cars have been crap for years and those who decided they should be that way had been found out long before the credit crunch and sub-prime crises. So instead of intelligence-insulting gesture politics such as selling their private jets and offering to work for $1 per year, their leaders should take the one step that really might make a difference: step aside and make way for a new breed who can tell the difference between a decent car and a pile of junk.

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