You gotta love capitalism. Yesterday’s terrorist haven is today’s burgeoning market. In a recent report in Automotive News, none other than Iraq is the new darling of major automobile manufacturers. The automotive tome noted that Volkswagen, General Motors, Ford and Chrysler are all pushing to expand their presence in the formerly (and, skeptics might say still) war-torn Middle Eastern country.
Iraq’s automobile market is currently less than 100,000 units annually, but, thanks to rising incomes, rapid economic growth and so-called safer streets (hey, only “1,500 Iraqi civilians were killed by bombs, sniper and roadside ambushes last year,” according to Automotive News, down from a peak of 34,500 in 2006), so Automotive News is reporting that some major players are forecasting growth of as much as 30%. General Motors already sells 32,000 cars there a year, making it the company’s second largest market in the Middle East after Saudi Arabia. That’s a mere pittance compared with the 9.025 million vehicles The General sold last year, but the company had targeted the Middle East for expansion. Sectarian violence, improvised explosive devices and state-fuelled religious intolerance be damned, we can sell them some cars, so let’s build us some dealerships.
Of course, any additional successful market is desperately needed if the auto industry’s recent revival is to continue unabated. China is, by most estimations, slowing its recently explosive growth. Ditto India. And just when you thought we could go back to ignoring the Europeans (thanks to the collective sigh we all breathed when Greece’s bond devaluation deal was finally signed) comes news that the entire EU auto market is about to come tumbling down, dragging all of us with it.
Bloomberg News is reporting that General Motors sees “clearly deteriorating” sales exacerbating the same kind of production overcapacity that crippled the American auto industry before its bankruptcies/restructuring/debt reduction of 2009 to 2011. According to Dan Amman, GM’s chief financial officer, worsening vehicle pricing — transaction prices are said to have dropped more than $200 in just the last three months — indicate greatly reduced demand. GM, Bloomberg reports, lost $747-million in Europe last year and $15.6-billion since 1999. The $420-million tie-up with PSA/Peugeot-Citroën reported in this column two weeks ago is the company’s most recent attempt to address its overcapacity issues.
And, unlike the most recent downturn, automakers are not counting on government “scrappage” incentives to artificially boost sales. Despite the recent improvement in Greece’s debt relief, the European economy continues to sour, weighed down by massive debt, debilitating unemployment and chronic over-regulation of the industry. Throw in the fact that, by some estimations, the Europeans may have as much as 20% too much automobile production capacity for current market demands and you have the same recipe for disaster that plagued the U.S. automakers through the last two decades.
The difference is that our domestic auto industry has already swallowed its Buckley’s — you know, “It tastes awful. But it works” — General Motors declaring bankruptcy (as did Chrysler), shucking income-dragging brands (as did Ford), laying off workers (as did both Chrysler and Ford) and shuttering plants (ditto Chrysler and Ford). Save for the seemingly never-ending death spiral of Saab (and its demise was sparked by GM), Europeans did not react to — or, as those nasty vulture capitalists might say, did not take advantage of — the Great Recession with any dramatic restructuring. Indeed, Fiat CEO Sergio Marchionne recently called for European Union intervention in reducing the industry’s overcapacity, though Volkswagen, the only major European automaker to make a profit last year, rejects such calls for government intervention.
The result, as anyone who’s ever tried to peel off a Band-Aid slowly knows, would appear to be a simple delay of the inevitable pain. Hence why Opel is crawling into bed with PSA/Peugeot-Citroën and Fiat is willing to sleep with, well, just about anybody. Volkswagen is said to be fuelling the troublesome price declines by using its heft — and profits from its successful luxury brands — to buy market share. No wonder Marchionne has been so preoccupied with expanding his Fiat/Chrysler/Who-wants-to-love-me-now conglomerate.
Of course, all this may be the same tempest in a teapot that the Greek debt crisis turned out to be (says he, crossing all his fingers and toes in the hopes that he jumped back into the stock market at the right time). The Economist, in its latest issue — Crikey, Ginger! Can It Be … The Recovery?!! — is predicting a steady, if subdued, recovery (albeit with the same aforementioned crossing of hearts and hoping to die) that would seem to make any weakness in the European auto market of minimal consequence.
Of course, General Motors guaranteed it was not declaring Chapter 11 and Rob Ford promised Torontonians a subway.
