Some of today’s established European carmakers will ‘disappear’ according to VW supremo, Ferdinand Piech. Making a rare public speech in China this week, he predicted the continued shrinking of the Western European market and, seemingly, predicted the demise of more than one rival brand.
When Piech speaks, the auto industry listens. As VW powers towards being the world’s largest car maker and with the recent unveiling of the huge MQB global platform and factory project, Piech can surely claim to be something of an automotive visionary.
When he took over at the VW brand in the early 1990s, VW was failing badly. As the engineering genius behind the Porsche 917 and the man who reinvented Audi as a brand synonymous with innovation and build quality, Piech not only knocked VW into shape, he drove a policy of multiple brand names sharing the same technology.
Much mocked at the time, this multi-brand strategy, Audi’s huge success and a genuine global sales footprint show Piech - now Chairman of the VW Group Supervisory Board - to be either immensely lucky or a master strategist. So, on the rare occasion he speaks, the industry listens.
Even so, it is hard to imagine car makers failing. The last two to go were Saab and Rover, which were ejected from their parent companies and, with sales of around 125,000 units, just too small to survive. If Piech is right, we are going to the see the demise of a really large company. Of course, there are tiny brands such as Lancia or Alfa Romeo that could conceivably be thrown overboard, but it hardly seems worth Fiat’s while.
More likely, Piech is hinting that Opel is staring into the fiscal void. A few days ago, Morgan Stanley analysts suggested that General Motors should ‘dispose’ of its ailing European arm. Adam Jonas said ‘Opel is the single biggest threat to GM’s long-term financial health and sustainability. We’d rather see GM with a three per cent share in Europe (under the Chevy brand) generating a profit than an eight per cent market share in Europe generating massive losses’.
That’s undoubtedly true, but Jonas also said that it would cost GM £8bn to close the Opel operation but, there again, it is looking at a loss of £700m this year alone and the possibility that the Western European car market has shrunk permanently, which could mean it is stuck in the red for some time to come.
With GM still partly owned by the US government (it has a £15bn investment from the days of GM’s bankruptcy) it's possible that pressure will be brought to stop GM throwing money at Opel, which has lost £10bn since 1999. Opel bosses say GM has a ‘10-year plan’ for Opel’s recovery.
Peugeot-Citroën is also suffering massive cash burn, so bad that even the new socialist president Francois Hollande has been told by his specialist that PSA has to close a factory and lose 10,000 jobs, no matter what Hollande said during the election campaign.
We are entering a perilous period, when European car makers making huge losses might just slip below critical mass, fail to find new finance and crunch to a halt. The last time that happened, outside of the 2008 credit crunch, was probably the collapse of BLMC (British Leyland) in late 1974. This time however, no government will step in and nationalise the remains.
If Piech is right, the next brand to go will go with a devastating bang rather than the whimper that marked Saab’s recent demise.