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Editorial: Global crisis for car makers

Last year, the global banking sector’s resilient image was exposed in a moment redolent of that scene in Wizard of Oz when a small dog pulls aside a curtain to reveal that the supposedly great and powerful wizard is just an ordinary old man.  It seems that the only thing bankers are good at is arranging rewards for themselves, while the rest of us worry about plunging property values, falling interest rates and the spectre of unemployment.  The car industry has suffered with declining sales giving makers in the UK like Nissan, Toyota and Honda no option but to cut or even halt production, as rows of unsold cars build up in fields.

Abroad, we hear that a similar situation exists with Peugeot-Citroen in France and Opel in Germany who are seeking $2.8bn in state guarantees until 2011 just to stay in business.  In Sweden, both Volvo and SAAB are in trouble, with the latter seeking protection from creditors while it restructures its debts and hopefully secures additional funding to underwrite the launch of two major new models this year.

Of course, SAAB and Opel are subsidiary companies of General Motors (GM) but the parent company has difficulties of its own, having announced a pre-tax loss of $1.1bn for the SAAB, Saturn and Hummer brands in mid February 2009.  Such losses are unsustainable long term and GM is considering winding down or shedding some of its brand names.  Volvo, of course, The Swedish government has supported its native motor industry with  loans and guarantees but is reluctant to commit further funding and has ruled out a state takeover because that would set a precedent for other companies in similar situations.

The difficult predicament faced by SAAB has much wider implications: it is widely known that future product development would see some production move to Germany under Opel management but Opel’s own future is now uncertain.  The possible demise of SAAB has been identified as worrying by Volvo Cars CEO Stephen Odell because the two Swedish manufacturers share a common parts supply base, particularly in Sweden. 

Ultimately, in the short term, state assistance be it for Nissan, Opel or SAAB must be seen as a temporary measure to stave off a damaging chain reaction that will affect not only employees of those companies but untold numbers of component suppliers, as well as dealers and their support staff right through to owners.  Long term state aid is unsustainable in the event of a continued economic downturn – simply adding to the fields full of unsold cars makes no sense at all. The only ray of hope in this dismal picture of global gloom is that historically, even the worst depression or slump passes eventually. In the meantime, SAAB is involved in talks with a number of parties interested in buying the company and have engaged Deutsche Bank to oversee the sale. Current owner, General Motors, hopes to conclude any sale before the end of June 2009.


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