Car sales ‘will not recover for five years’

The European car industry will have to wait at least five years before sales return to pre-recession levels and faces recording heavy losses during that period, according to AlixPartners, the turnaround specialists behind the restructuring of General Motors in the United States.

With fewer and smaller cars being sold as consumers tighten their belts, the industry faces a liquidity crisis that will result in €30 billion global cash surplus being wiped out this year and €40bn more leaking from the sector in 2010.

Considerable overcapacity and the high levels of debt built up by manufacturers also means that the industry is set for fierce consolidation.

Credit Suisse has added to the concerns by downgrading the entire European automotive market because of doubts about sales volumes in the second half of 2009 once state support scrappage schemes are withdrawn. Meanwhile, AlixPartners says that the schemes could leave a demand vacuum when they end.

The car industry is being particularly hindered by the downturn because demand for new models in the early part of the decade was high, fuelled by the availability of cheap credit.

However, with global economies now gripped by recession and consumer demand low, sales in Europe will take until 2014 to reach the 16 million level of 2007, says the report.

Stefano Aversa, AlixPartners’ managing director, said: “The real crisis for the automotive industry has yet to arrive – when governmental incentive programmes expire, that will truly be ‘zero hour’.”

The report suggests that manufacturers will realise a loss of €1,800 on every vehicle sold this year.

If the global economy continues to decline in 2009, it adds, between 30% and 50% of European suppliers could be in ‘fiscal danger’ and face insolvency within two years. (Daily Telegraph: July 3).

GM to sell golf course in asset sale

A golf course in New Jersey and a car park in Michigan are among the items being sold by cash-starved General Motors in a forthcoming ‘garage sale’.

As part of the vehicle manufacturer’s Chapter 11 bankruptcy process, the firm is selling assets it no longer needs.

Top of the list is the golf course at Hyatt Hills in Clark, New Jersey, which was built on a former factory. No price tag has yet been placed on the course. (Daily Telegraph: July 3).

Consumers cut car trips

More than two-thirds of environmentally aware people have cut the number of trips they make by car.

Nearly 70% of concerned consumers have reduced car use in the past year and the main reason for the switch to other forms of travel has changed from cost to factors such as better public transport, according to the annual Populus survey.

Only 35% cited cost as the primary reason for cutting car journeys, compared with 47% last year, when the high price of petrol was driving consumers off the road.

Additionally, 34% said lifestyle changes were responsible for the reduction in trips – up four percentage points from last year. Improved public transport was given as the main reason by 7% of respondents, compared with only 3% last year.

The environment remains a prominent issue with 14% of concerned consumers saying it was the most important reason for cutting down on trips.

David Lourie, an analyst for Good Business, the ethical consultancy, said the findings demonstrated that the unprecedented price of oil last year may have fostered a long-term change in how people want to travel.

However, cars will remain a part of people’s lives for the foreseeable future with only a quarter of respondents, down four percentage points, said they would not have a car in 10 years’ time. (The Times: July 3).

Licence plates snapped in record numbers

Police cameras now record 100 number plates every second in Britain – a total of three billion a year.

Data released under the Freedom of Information Act reveals that annually every UK motorist typically gets snapped 90 times.

The images are mostly taken by automatic number plate recognition cameras hidden in strategic urban locations as well as at ports and airports.

Police say the cameras are a vital weapon against terrorism. (The Sun: July 3).

Fleets put cost at centre of company car strategy

Companies are switching focus away from a human resources approach on fleet management to a strategy of managing and cutting costs.

Earlier this year, PricewaterhouseCoopers revealed that 89% of companies now considered managing fleet costs to be a priority, while only 22% said recruitment and retention was a major consideration.

Its Monks Company Car 2009 report found that while fleet strategy was still primarily driven by the HR department, cost management was increasingly coming under the finance department’s responsibility.

Finance directors are now largely dictating policy with fleet managers reporting that they are under immense pressure to cut costs.

However, this becomes an opportunity to demonstrate their value to the company, according to Mark Sinclair, director of Alphabet (GB).

“Fleet managers need to seize the opportunity to be proactive and add value to reduce costs,” he said. “The balance of power has shifted from the driver. Now it’s all about reducing costs, not staff retention.”

Stewart Whyte, managing director of Fleet Audits, believes fleets could easily realise savings of five to 15% by taking a close look at costs. “If fleet managers don’t keep a lid on costs then they will only rise,” he said.

This week’s ‘Fleet News guide to managing costs’ highlights how savings can equate to millions of pounds by buying the right vehicles (British Airways has cut its fleet carbon footprint by a third by taking on Honda Civic hybrids), reducing accident rates (Network Rail has cut accidents by 30% by adopting a zero tolerance attitude), minimising mileage (Campbell’s Prime Meats has seen a 15% fall in fuel costs thanks to tracking) and ensuring staff drive in an efficient and safe manner.

According to the Monks Company Car 2009 report, the fleet priorities this year are: Manage cost (89%), manage CO2 emissions (55%), manage risk (51%), make fleet fit for purpose (42%) and attract/retain staff (22%). (Fleet News: July 2).

Deadline looms for Block Exemption changes

The expiry of the current European Union Block Exemption Regulation (BER) on May 31, 2010, is marked with confusion within the industry and possible changes are far from being decided even though it is less than a year away.

The current rule, which govern the relationship between manufacturers and dealers, are much more detailed than the general BER which the rest of the retail industry adopts. The main differences are basic contractual standards such as termination notice periods, minimum notice periods for contracts and reasons have to be given for termination. It also contains many more aftermarket provisions.

John Clark, DG competition official for the European Commission, said: “There are fewer competition problems now than there were in the past. When I first joined DG, there would be a pile of complaints waiting for me each morning. Those complaints just don’t exist now.

“What we see from the dealers’ point of view is that the raising of dealership standards is partly linked to Block Exemption clauses and manufacturers feeling that their brand identity is threatened by selling brands of competing manufacturers in the same showroom.”

An impact assessment will set out what the regime for BER is expected to contain this summer.

However, the new European Commission will be formed in November and between then and when BER expires in 2010, it will have to decide whether to push ahead or postpone changes.

According to Mr Clark, there are four outcomes which could happen with BER when it is renewed, or not as the case may be: It will continue without change; the car industry will adopt a general BER, which is much simpler; t will adopt a general BER with some changes; or it will adopt a specific BER that focuses on the aftermarket

Mr Clark said: “We’re not considering extremes. We don’t want a situation where there is no specific criteria for the automotive sector and we don’t want a complicated BER given the problems we’ve had enforcing the current one.”

Mr Clark admitted that independents had had problems accessing repair information from manufacturers and there had also been cases where manufacturers had refused to pay out on warranty work if an independent repairer had carried out the work.

Andrew Tongue, director of the International Car Distribution Programme, said: “Regulators are facing a period of uncertainty. There will be a new European parliament and commission in place and they will both want more time to analyse the outcome of where BER will head in the future.

“As a result, the current rules could be extended for a transitional period until 2011 to give more time for the regulators and to give the global economic climate time to become clearer and perhaps a bit brighter.” (AM-Online: July 2).

Independent garages adapt to the recession father than franchise dealers

Independent garages have generally adopted faster to the recession than franchise dealers, according to motor industry consultancy Network Automotive

The company says that in key areas such as adapting to changing customer needs, losing headcount where necessary and adopting new marketing strategies, independents have led the way.

Managing director Colin Bruder said: “Independents tend to be smaller businesses with centralised management, so it is no surprise that they have been able to react to the tougher economic conditions more quickly.

”In contrast, the franchise dealers that we work with are larger with more complex management structures and have the added complication of manufacturer involvement. It takes more time to bring about change.”

As an example, Mr Bruder points to one of the emerging trends of the recession – that customers have increasingly wanted to negotiate for the price of work.

He explained: “For all kinds of work, customers now want to haggle over the price. If you quote £200 for a service, they might counter with £180 and you arrive at £190 as an agreed figure.

”Independents can handle this kind of thing easily – often the owner is someone who is still very hands on and may even be taking the work booking. For franchise dealers, though, this has been more difficult to deal with. Service managers often have their hands tied by menu pricing and do not have the power to negotiate on price. Some have lost business because of this inflexibility.”

However, Mr Bruder added that, with the recession now a year old, most franchise dealers were beginning to catch up with and some even to pass independents in their responses to the recession.

He said: “What we are now seeing is a culture change among franchise dealers. Many have become more nimble and flexible while manufacturers have adapted their marketing strategies to deal with customer demands over pricing.” (Network Automotive: July 2).

UK motorists join car clubs in huge numbers due to recession

A survey has shown that motorists have joined car clubs in large numbers during the recession and there are now over 60,000 motorists in the UK.

Membership has more than doubled at City Car Club, one of the biggest UK clubs, in the past year since the credit crunch started mainly because car clubs are a much cheaper alternative to owning a car, the organisation claims.

But also the growth in broadband internet access in the UK has been a big factor because most people join and book the cars on the internet.

The survey by TRL (Transport Research Laboratory) found that there are now 61,000 car club members across the UK. It asked City Car Club members how they had changed their motoring habits since joining a club and found that 41% of existing members and 39% of new joiners had reduced their car ownership.

In total it amounts to a reduction of 24,400 cars off the UK roads, and the growth of car clubs shows no signs of slowing in 2009, it is claimed. Taken in addition with the fact that car sales have dropped by over 25% in the UK the survey shows a massive change in how UK motorists want to have access to a car.

Car Clubs are basically pay-as-you-go rental schemes where members can book locally parked cars for as little as £3.96 an hour and 50 miles free petrol every day. The cars are parked in local clusters on the streets in convenient locations near to residents and businesses and can been booked on the internet.

City Car Club says joining it is considerably cheaper than running a private car, over £1,800-a- year cheaper in most cases. Membership is £50-a-year (£25 for partners) and £30 for business users, and that annual charge covers insurance, maintenance, depreciation, cleaning costs, and 50 miles free petrol every day.

According to AA figures, a second-hand Vauxhall Corsa clocking up 4,000 miles-a-year will cost £2,903 – a City Car doing the same mileage will cost £1,065 – a saving of £1,838 – excluding the cost of buying the car in the first place. (City Car Club: July 2).

Mandelson hints at Vauxhall loans

The UK Government is prepared to make loans or loan guarantees to help push through the sale of Vauxhall, Business Secretary Lord Mandelson has said.

Vauxhall is owned by General Motors (GM) Europe, which is in talks to be taken over by Magna International, a Canadian car parts maker.

Lord Mandelson, who today (Friday, July 3) visited Vauxhall’s Luton van-making plant, said: “We would obviously have to have interest paid and some security. This is taxpayers’ money we are dealing with, and a lot of it.”

Lord Mandelson refused to say how much the loans could be for.

Vauxhall assembles vans in Luton and cars in Ellesmere Port. Lord Mandelson said: “I believe that Luton should be, and will be, part of Magna’s long-term plans, but it’s not a done deal.”

The takeover of GM Europe comes after its US parent, the American carmaker, General Motors, filed for bankruptcy.

At Luton, Lord Mandelson met trade union leaders as well as Vauxhall workers.

As part of those talks he updated them on discussions that the Government has been having with all the parties involved and reiterated the Government’s commitment to continued Vauxhall production in the UK.

Lord Mandelson said: “I want workers at both Luton and Ellesmere Port to know that we are doing everything possible to secure a long term commercial future for Vauxhall.

“I and my officials are in constant contact with the US and German governments, GM US and GM Europe and others to ensure Britain’s interests are fully represented. We also continue to have detailed discussions with Magna and other interested parties.

“Luton produces the award-winning Vauxhall Vivaro van and soon Ellesmere Port will build the new Astra. The Luton plant represents nearly a fifth of the UK light commercial vehicle market. Vauxhall is an excellent and very popular UK brand. Continued Vauxhall production remains a top priority for this Government.” (BBC.co.uk/ Department for Business, Innovation and Skills: July 3).

Chinese car company makes bid to buy GM Europe

General Motors says that the Beijing Automotive Industry Holding Co. has submitted an offer for its Vauxhall/Opel division, giving the bankrupt US automaker more options in the event negotiations with Magna International fail.

Beijing Automotive made the non-binding proposal after examining Opel’s books, according to a GM spokesman in Zurich, who declined to provide details. The Chinese company’s bid is being reviewed, he said, adding that talks with Magna remain ‘on track’.

Magna, Canada’s biggest auto-parts manufacturer, was chosen in May as the preferred bidder for Vauxhall/Opel. Progress has been slowed by disagreements over rights to use Detroit-based GM’s technology and engineering designs, people familiar with the talks have said. (Bloomberg.com: July 3).

GM awaits US ruling on sale plans

A new General Motors could emerge from bankruptcy protection soon if a US judge approves its plans to sell assets to a company owned by the government.

Yesterday (Thursday, July 3), Judge Robert Gerber asked lawyers to submit papers to him by today (Friday, July 4). He is expected to make a ruling on the carmaker by July 10.

Dissenting bondholders have called on the judge to block the sale. But lawyers for General Motors said failure to approve the sale would be ‘catastrophic’ for the firm.

The US government has indicated that it will not fund the car giant after July 10, increasing pressure for a decision before then.

Under GM’s proposed deal, the carmaker would sell its best assets to a new company owned by the US government. It would have a smaller workforce and much less debt. The US Treasury would provide $60bn (£36.6bn) in financing to the new company and would take a 60% stake. (BBC.co.uk: July 3).

Foreign fleets could source vehicles from Britain

It’s only a matter of time before foreign fleet operators are sourcing their cars in the UK, according to Fiat UK chiefs.

The weakness of the Pound against the Euro means the just-launched Fiat 500C is €16,600 in Italy, but is only £11,300 (€13,250) in Britain.

Andrew Sproston, sales director of Fiat UK, explained: “We have requests from customers wanting 300, 400, 500 cars – obviously in left hand drive – and EU law says we have to supply them. It’s hysterical because it’s the exact opposite of where we were a few years ago with UK customers traveling abroad to buy.”

Mr Sproston said this was not business Fiat UK was actively seeking, and acknowledged he could do without it because of the logistics involved. The cars, built in a factory in Poland, come to the UK and physically have to go to a dealership to be handed over to the customer, who immediately exports them.

“It’s problematic for us because the customers want the cars to be in the exact spec of the foreign market, which may be different to UK spec. It means our systems can’t deal with it, so stuff has to be inputted manually. My logistics director is looking at me woefully at the moment.”

One of the biggest problems is in the Republic of Ireland where the 500C is priced at just under €20,000.

Mr Sproston said, not surprisingly, customers were crossing the border to buy in Belfast. “The Irish dealers are asking for our help but there’s not much we can do,” he added. (BusinessCar.co.uk: July 3).

Brits unprepared for Europe’s roads

One in three motorists surveyed by RAC are gearing up to drive in Europe this year, but research from the motoring organisation reveals that many don’t have a clue what it will cost to drive abroad or what to do when it all goes wrong.

35% of motorists surveyed have no idea what to do if they are involved in an accident and only a third know the correct number for the emergency services in Europe.

The research also revealed that nearly one in ten motorists have been involved in an accident whilst driving in Europe and 12% have broken down.

Additionally, a common misconception is that fuel is cheaper in Europe. Almost half of motorists (48%) mistakenly believe that petrol is cheaper on the continent but in four of the five most popular European driving destinations – France, Germany, Italy and Belgium – unleaded petrol is up to 23 cents more expensive per litre. This could potentially affect motorists’ fuel budgets by up to €58 (approx £50) based an average family car doing a 2,000 mile round trip.

Diesel is however cheaper per litre in all five destinations, particularly Spain where it costs approximately 25% less than in the UK, saving motorists up to €60 (approx £51) on the average trip.

David Hawes, RAC patrol manager, said: “Foreign roads can be a dangerous place, so it’s always best to be prepared. It’s also crucial to swot up on European driving laws before you go to avoid any pitfalls.” (RAC: July 3).