Carrina / Auto Consept

How are the world's top car makers prepared for the global recession?

WHAT'S WRONG?

Industry analyst BernsteinResearch experts a 'huge' profit warning from VM by the first three months of 2009. It says VW has the "highest fixed costs....and the greatest risk of an earnings collapse of any EU car maker."

Porsche, which unexpectedly snatched 74% of VW last week,is also expected to go through a torrid year in 2009, with sales sliding and it most profitable models being the hardest hit. Although Porsche's annual 100k sales are a fleabite compared with VM's total, Porsche profits for 2006/07 could top �800m.

BernsteinResearch says that Porsche relies heavily on the US and UK markets are being badly hit by the downturn.


WHAT THE CURE?

With much of its manufacturing in high-cost Germany, and with powerful unions and local government intervention boxing VM-Porsche in, it will be difficult for VM to reduce its fixed costs.Continuing to turn out 'premium mainstream' vehicle, such as the Golf, that command a premium price is a task that VM can never shirk in Europe.

However, a new plant in the US should improve US profitability and re-engineering vehicles for a less demanding market is a sensible move.

The days of big profit margins from Porsche are over for now, but closer ties with Audi could be a long term success.

SURVIVAL RATING 9.5




WHAT'S WRONG?

Everything. Over the last 12 months, GM has been the worst performer in the Dow Jones Industrial Average, with its shares losing 84% of their value.
GM sales are officially 18% down, but new car sales in the US look like hitting just 11m in 2009, the lowest figure since the raging recession of 1982.

The effect on GM has been dire. It is already axing jobs and factories, and the firm has been forced into heavy discounting of its new cars, further undermining its finances.

GM is said to be burning �630m in cash per month and many analyst think that its bank account could hit minimum operating level of �7.8bn in cash by mid-2009.

Reports say that GM has lost a total of �43bn since it last made an annual profit, in 2004.


WHAT'S THE CURE?

With the world economy heading south, GM is in race against time. Short-term cash-rising plans include selling Hummer and parts maker AC Delco.

However, GM is in talk with Cerberus Capital Management, owner of Chrysler. It might want access to the struggling brand's cash pile (a rumoured �6.8bn) in government aid to merge the two brands, close factories and try to made one good firm out of two door poor ones.

In the longer term, GM's global manufacturing project - building most of its cars on the same platform in factories around the world - has the makings of viable business model. It just might not get there in one piece.

SURVIVAL RATING 4.5



WHAT'S WRONG?

LIKE GM, FORD is in a precarious position, battered by the slump in the US new car market. It is also though to the consuming around �630m in cast every month to keep running;its reverse could run low by the end of 2009.

To ease its crisis,FORD is looking at selling off most of 33% of share of Mazda. It has already flogged Land Rover and Jaguar.

FORD is still heavily reliant on the F-150, which has potentially big profit margins, but large SUV sales have fallen by over 50% year-on-year.

FORD lost �5.4bn in the second quarter of 2008 and it also having problems with its credit arm. Its biggest problem may be that it has now run out of financing options, having already mortgaged its assets in 2006.


WHAT'S THE CURE?

Time, luck and a turn around in the global economy,really. FORD's global manufacturing scheme is slightly ahead of GM's, SUV factories are being converted to build the Focus and the new Fiesta is also being launched in the US. FORD's rage of medium US market road cars are also well regarded and will, in time,be replaced by cars based on the new Mondeo.

Unfortunately, road car margins are smaller than those enjoyed by truck-based SUVs and it will take some years for the global product plan to kick in.

SURVIVAL RATING 5.5


AFTER decade of increasing sales and profits, Toyota has hit the wall. Although Toyota group sales (including affiliates Daihatsu and Hino) are expected to slip marginally from last year's 9,3m, company profits are tipped to be meltdown. Toyota is expected to see its annual profits halve in 2008.

Japan's giant has been hit by the crash in the US market, where it saw sales plunge 32% in September. It is also suffering in Europe, with sales down 15% in Western Europe. It also sold just 36k Lexus cars in Western Europe in 2007.

Toyota is suffering criticism for what are seen as bland and derivative new models, and it has been hit by uncharacteristic quality problems in the US and elsewhere.


WHAT'S THE CURE?

Toyota needs to commit to some serious soul-searching if such a tiny slip in sales causes such a huge collapse in profits, even taking into account a rising Yen and higher energy costs in its home country.

New products will have to become sharper and more attractive, though Toyota has already formed a committee to produce 'more interesting cars'.

Shifting Lexus to a hybrid only brand could make sense and offer a way for Toyota's luxury division to break into the demanding Western European market. Making Prius a standalone brand and expanding the range could also be a step forward.
But fundamentally, Toyota is an immensely solid company.

SURVIVAL RATING 10


WHAT'S THE WRONG?

ALTHOUGH sales growth in 2008 has only been eased back from 6% to 2%, Hyundai is still tipped to see a 60% drop in profits in the third quarter of 2008. The final sum remains pretty healthy, though, and Kia could also fight back in 2008, turning around the losses of last year.

Hyundai-Kia is being hit by the global downturn, but it's also being hit by a rise on the value of the Korean currency and the effects if strike in its home factories. The cost of building cars in Korea is also high and rising, and production is being trimmed in the US.

Despite building cars in China, Hyundai-Kia also recently faced a ban on South Korean-made cars being imported there.


WHAT'S THE CURE?

Hyundai-KIA has already carried out a textbook operation in how to expand around the globe. It has localised production with new factories in Europe, China and the US. It is also subtly localising its cars for local tastes.

However, a heavy emphasis on new product, though it could pay dividends in the medium term as the company establishes its reputation to overcook things then Hyundai-Kia should be well placed for the revival of the global new car market.

SURVIVAL RATING 10