When I was a young and budding Creative Director on the Volkswagen account (some time in the wild 70s,) I was told that there is only space for 10 automakers on this planet. In 2008, Marchinonne said there is room for 6. Now, the odds are there is Lebensraum for 3 to 5 automakers, depending on who you ask.
The prophets don’t seem to look around when they say that. The annual OICA list of the world’s largest automakers has 50 positions. In China alone are anywhere between 60 and 120 automakers, nobody seems to have a definitive number. Since I was a young and budding Creative Director on Volkswagen 30 years ago, the number of carmarkers worldwide has risen dramatically. It looks like the minute a country turns from a “developing country” into an “emerging country” (whatever that may be,) they want at least one of their own automakers. Even Iran has a couple of sizable automakers, they aren’t on the OICA list, and it’s not for a lack of units made.
If it would be true that one needs annual output in excess of 5m cars to survive, then our choices would be limited to Toyota, GM, and Volkswagen. Reality looks different.
The motorized mass mortality doesn’t seem to happen, and it won’t happen anytime soon.
If there was a global event that could have triggered mass extinction of the dinosaurs, then it was the carmageddon of 2008. Without government intervention, it would have broken the neck of several automakers. Curiously, it wasn’t the necks the prophets had in mind. It was the biggest ones that nearly died, would they not have been rescued by the generous donations of people like you and me.
Sometimes, it’s good to take a long-term look. Over the weekend, I lined up the OICA production numbers from 2003 to 2009, and plotted them over time. For the top ten only, all fifty would have been too confusing. I took strictly the official OICA numbers. If you have issues with them (and there is reason in several cases,) the issues must be taken up with OICA. They are production numbers only, the metric the industry goes by. If some want worldwide transaction price rankings: I don’t have them.
What does the big picture tell us?
Toyota and GM, the two giants, suffered similarly, and a lot. GM started hemorrhaging a bit earlier and fell a bit deeper, but overall, GM fared not much differently than Toyota. If GM would have been better managed and would have built reserves instead of living from paycheck to paycheck, they could be in the same situation as Toyota, without any government help.
Ford was mauled badly. It is amazing that they survived without a bankruptcy and a GM-sized bailout.
Volkswagen, through sheer luck, was in the right place (China) at the right time, and was a nobody in the wrong place (U.S.A.) at the wrong time. Hence, Volkswagen survived carmageddon relatively unscathed. If they wouldn’t have been sidetracked by their own in-house version of the carpocalypse, the Porsche-Piech-Wiedeking-coup-and-counter-coup, they probably would look even better today.
The big winner is Hyundai. While nobody was watching and everybody was self-absorbed, dark horse Hyundai came from behind and showed that even if the sky is falling, there is room to rise.
The others are biding their time. No major battle damage (except for Honda.) They are all pretty much treading water.
Looking ahead, the decisive battle for world domination in terms of sheer production numbers is fought in China. It’s the world’s largest auto market and growing like gangbusters. By the end of the year, the Chinese will most likely have bought more than 16m cars, compared to projected sales “in the low 11m” in the U.S.A. GM is strong in China. Toyota is weak in China. Vokswagen is strong in China. Ford is weak in China.
Assuming continuous moral and political support at the home front, provided by GM’s main shareholders, GM will most likely re-take the #1 position in global output this year. The mid-term trend points strongly in that direction. However, this will be a hollow victory. Most of the volume in China comes from cheap little delivery vans built by a company called Wuling, a joint venture in which GM has only a 38 percent share. GM gave up the majority of their joint venture with SAIC for the express purpose that SAIC can reflect the whole profit on their books. How this will play out financially remains to be seen.
The big winners in China and elsewhere will be Volkswagen and Hyundai. Re-check the mid-term trend for details. Both Volkswagen and Hyundai are well positioned in China. Volkswagen much more so than Hyundai. Volkswagen profits immensely from a low Euro, and from increased exports. Ford is not a serious player in China. Therefore, I see Hyundai overtake Ford worldwide by year-end. The appreciating value of the Japanese Yen will cause Toyota additional pain when the books are closed. The low Euro and the teetering European market will hurt Ford. Ford has big exposure in Europe.
By the end of the year, the production ranking will most likely be #1 GM, #2 Toyota, #3 Volkswagen, #4 Hyundai, #5 Ford. In terms of profits, it most likely will be a tight race between Toyota and Volkswagen.
PS: Speaking of China, I will be touring the most scenic sites of China (factories in godforsaken places) all of this week with some hardy European customers. You will see very little of yours truly. Don’t worry (or don’t get your hopes up), BS shall return.
One explanatory note to the figures: as Bertel says, there is much to complain about the numbers. One of the caveats is that until 2008, OICA counted Kia separately from Hyundai. Why they combined them for 2009 is anyone’s guess, as Hyundai still owns less than 40% of Kia. Maybe their agreement allows Hyundai to claim the production numbers?
In any case, for 2008, the Hyundai+Kia total was just under 4.2M, so the rise in 2009 was somewhat less meteoric than it looks — about 10%, not 40%.
I can only report the numbers as they are listed. GM should NOT count the Wuling numbers. Without Wuling, GM would be #3. Nissan and Renault could possibly be taken together. There is all kinds of other creative (or not) bookkeeping. But those are the numbers. Even if Hyundai’s rise is less meteoric, they will take out Ford by year end.
The blame is fully on OICA, not you, Bertel. And I agree that Hyundai+Kia will be easily in front of Ford for 2010, assuming they are still counted together in 2010 numbers.
@BS,
OTOH, I think the low euro may actually be a blessing in disguise, if the European market goes into a freefall, as expected by some, resulting in losses for H2 2010 and quite a bloodbath next year.
Your chart BS is a little misleading because it only goes to the middle of 2009, probably the nadir of Carmeggedon. Both Ford and GM will show an improvement by 2010.
You are correct about the Chinese but the big thing is NA. With wild swings in the market for the US by a few makers that will affect the numbers far, far more than the large baselines in China by the very same things that you mentioned: JV’s. Except for VW, almost no manufacturer gets such a large helping from their JV’s to their bottom lines. A few percentage uptick in NA OTOH will be huge.
I expect Ford to be the real winner as they continue to do well domestically. And there’s more profit per model as well. Not all markets are the same and each sale is not equal.
It doesn’t go to the middle. These are all end of year numbers,
@Dimwit, Ford is doing well in North America, but in the European market their sales are in a free-fall now that the UK scrapping incentives are over — down 25% over last year in both April and May (ACEA hasn’t released June or July numbers yet). Given that Ford’s European volumes are fairly close to the North American ones, there won’t be a massive jump in global volumes.
Even worse, due to the low EUR, the European financials will look bad in American books.
Right — the EUR drop (or really USD rise for the most part) combined with a 25% drop in volume could be a 35% drop in USD revenues for Ford Europe. The only mitigating factor is that the sales are not as focused on smaller cars as they were last year.
The ACEA June numbers have been out for a while. I expect the July numbers on Monday. Won’t look good.
Ford was down 15.8 percent in June in Europe, with Volvo. Without Volvo, 19.9% . Volvo will no longer be counted as Ford in August. Jan-Jun down 1.9% with Volvo, down 5-1% without. They’ll miss Volvo in Europe (+20% Jan-June).
Thanks. I was looking on ACEA’s site and somehow didn’t see the June numbers.
And most of the blogging software (like what TTAC uses) makes it way too hard to find old articles. I wish I could get a list of just all articles on a given keyword on a single page, with just a headline and date. But, no, you need to click “next” countless times just to get through one month.
Bertel –
Can you offer up a little explanation on how the JV system works? Are all foreign companies required to have a Chinese partner to share profits with in order to do business in China?
A foreign company can set up shop in China on its own, except in the case of certain “strategically important” industries. In those industries, they need a joint venture partner, and they cannot own more than 50%. One of these strategically important industries is car making. (But for some odd reason, also a bar – at least last time I looked.) You can open a wholly foreign owned auto parts maker, if you make cars out of the parts, you need a joint venture partner.
The rest is a matter of the joint venture contract. Often, the contract indeed says that the foreign partner can report 100% of the sales numbers, how you divvy up the profits is yet another matter.
Also, when you look at the numbers of Chinese companies like SAIC, FAW et al, you will only see the numbers for their “own brand” cars. The cars they build in a JV are counted by the JV partner. For instance, there is no “Wuling” on the list. They make more than a million cars a year. Little Wuling should be in #15, before Mazda and Chrysler. Instead, they inflate GM.
You can bet that the honor to book the sales numbers comes with a price. Things may be cheap in China, but nothing is free.
Thank you for the info. I’m surprised more people aren’t outraged by this. For all the flack TTAC gave the US over starting a tire trade war, why is no one calling China out for basically forcing foreign companies to give up to 50% of their profits to Chinese interests?
Keeping nasty foreigners out of “strategic industries” is common the world over. I once wanted to buy a share in a US radio station, and wasn’t allowed. Murdoch had to become a U.S. citizen to get around. I was offered (and entitled to) the same avenue, but wanted to keep my EU passport.
Also, the Chinese rules simply say you need to have Chinese partners. If they put up 50% of the investment, they are entitled to 50% of the profits – if the contract says so.
If I, as a foreigner, find a Chinese who plays ball, I even can take 100% of the profits. As I said, the number of shares and the profit distribution don’t have to be related.
It just proves that Marchinonne is a stupid establishment cretin who desires the use of global political violence to destroy global automobile competition…There is “room” for 1000s of automakers in a free-choice/freewill market….Fascist maggot.
Don’t know who gored your calf Aaron, but your comments seem a little bit off base.
There is little historical precedent for your comments. In arguably the most free market ever, prior to internationalization and globalization of the auto industry, the auto industry contracted from hundreds of makers to 3 dominant ones (G, F, C) and several smaller ones (H, N, S ,P, K, etc.) within ca. 50 years and 10 years later, to the same Big-3 and HNK by then a.k.a. AMC.
And if you had read the testimony of Lasorda et al. in the filings before the bankruptcy court regarding how Chrysler, in the year or so before filing, cast about (flailed about really) for a partner, buyer or savior of any kind and failed miserably you would know that you might be a little bit more grateful that Fiat was willing to take a chance to give Chrysler a chance (if he had passed on the chance, Auburn Hills would be a total ghost-town).
This theory about a limited number of automakers is was made BMW enter into their largest debacle ever. Conventional wisdom in the late 80’s early 90’s was that a “small” automaker like BMW could not survive led them to purchase Rover…”the English patient”. They lost over 1 billion euros. After divesting themselves they retrenched, albeit with MINI and became stronger than ever. Today they are the world’s most valuable auto maker, recently surpassing Toyota.
sorry, but what you said is just wrong.
bmw didnt loose 1 billion in land rover. they bought them
because it was cheaper to copy LR’s offroading technology then to develop it from scratch. 1 billion was peanuts for what they got.
Viewing the Rover transaction as some kind of a bargain basement win for BMW is a view which you will find very few knowledgeable people in agreement with. “Offroading technology” is hardly key to BMW’s current product offerings, and in any case is available off-the-shelf from various suppliers for much less than a billion euros. Not to mention the fact that BMW later fobbed Land Rover off onto Ford which in turn flipped it to Tata. Hardly Her Majesty’s Crown Jewels.
John Horner
when bmw acquired LR there was no off-the-shelf offroad technology to buy. bmw didnt even have their X suvs. they used LR tech as a jumping board. so i’ve read.
I recall the script of the Diamler/Chrysler merger (of equals) was that neither could survive in a global car world. Just because you are expert at making $60k (luxury) automobiles doesn’t mean you are expert at $20k (volume) automobiles. And there were myriad cultural (and hubris) issues.
You know if you look at JLR’s sales growth then they are currently one of the fastest growing car companies on the planet (in % terms). That really suggests that Ford and BMW both cocked up big style. Because frankly they shouldn’t be this strong during such tough times economically.
BMW should have been ambitious and grown Land Rover, ditched Rover, relaunched Triumph, closed Oxford and made the MINI at Longbridge where there was more room for Growth.
Ford should have hung on because at JLR’s current rate of growth and with their current expansion plans then it’s not hard to see them becoming a really world player in the premium car market…
Perhaps Ford’s problem is a corporate cultural defect which makes the company unable to effectively own and manage affiliated companies. VW, on the other hand, is one of the few global automotive companies which has a decent track record at such things. Most big companies make a complete hash of such a job.
I read a book about a year ago about BMW (BMW from inside, from David Kiley). And in one chapter he explains the Rover debacle.
Land Rover was the price BMW had to pay to get rid of Rover. They were able to save the MINI for themselves.
In a perfect world, BMW would have kept Land Rover, MINI and Rolls Royce (that one went very good): premium off-roaders/SUV, premium A-B class and ultra luxury.
Rolls Royce wasn’t part of the Rover bundle, though — that one was BMW pulling the rug from under Ferdinand Piech (with much glee, I’m sure). Mind you, VW ended up doing quite OK with Bentley in the end.
@th009
When I mentioned Rolls Royce, I never said it was bundled with Rover.
I mentioned it because it would have created a real PAG with known and solid brands.
I don’t have the numbers in front of me, but unless JLR is doing gangbusters business in the rest of the world, what I recall from the past several months of US sales leaves a lot to be desired. Sure, the sales are up, but there is also a lot of new product on the lots, so that’s natural. The sales are still firmly in also-ran territory, and it’s going to take massive amounts of work to bring JLR even into the mid-level brand sales numbers.
The biggest problem Ford had with the PAG was that there were too many overlapping brands. How do you define exactly where in the market Lincoln, Volvo, Jaguar, and Land Rover should exist to have compelling products but not step on each other’s toes? VW and Fiat can get away with the multiple luxury brands because anyone wealthy enough to own a Maserati can also buy a Ferrari, they don’t choose one over the other, and with VW, as long as they can keep Audi and Porsche from fighting the marketplace, the brands are stratified enough to make it all work.
@NulloModo: Except, that is, for Seat and Skoda – they both fill the same niche in the market, despite all attempts at making Seat the sporty, emotional brand. Just that Skoda is succeeding and Seat is not.
Bertel, how do you think the rise of China and fall of Europe will change what cars are available in the US market? Obviously demand from customers in China helped keep Buick alive. What types of cars get the green light due to China and what cars get canceled?
There was no serious “fall of Europe.” There was as serious crash of the U.S. that freaked major EU government so much that they administered heavy dosages of stimulus money. That jerked the EU market to pornographic levels in 2009. The drugs are withdrawn, with the adjunct withdrawal. That bulge is working itself through the snake. Once the snake has gone potty, back to normal, whatever the normal may be. Note the resurgence of larger cars and luxury.
The key is exports. Germany usually exports half its production. Currently, Germany is way down compared to 2009, but production is in excess of 2009, due to exports. They can’t make them fast enough.
Which cars? Simply check what sells in China. If you are not in China, you’ve got problems. Huge problem for Opel. They are in China alright. Called “Buick.”
One clue is to note the popularity of Audi models such as A4L and A6L — long-wheelbase versions of the A4 and A6. Many Chinese like the extra room inside, at a moderate cost (compared to, say, an A8).
VW’s new Jetta with its XL interior space and reduced price tag might be a very good fit for the Chinese market, too.
Guess that “Go Little Hyundai” song from the 60s was prescient.
People laughed in 2009 when the Genesis was debuted. People are laughing before the Equus’s upcoming debut in 2011. Wonder how long people will keep on laughing.
The Sonata is Hyundai’s big ticket. The Genesis is still floundering about.
All that discussion about numbers by the neighbors above is revolting to the newly politically correct.
What truly matters is FEELINGS!!!!!!!!!!!!!!
Whoa whoa whoa.. feelings….
Feelings, nothing more than feelings,
trying to forget my feelings of love.
Teardrops rolling down on my face,
trying to forget my feelings of love.
La la la la la la………….
Sniff
what I call a market glut…..
NulloModo JLR is going great guns in Europe and China. In fact sales in China are stunning especially when you consider they don’t produce locally.
I think in the UK JLR are now consistently showing growth of circa 50%! The USA is struggling economically more than most so perhaps that accounts for the difference. Sadly for Ford they only have minnow premium car maker Lincoln and that’s a US only brand…. So all that growth JLR is now enjoying is in markets where Lincoln doen not compete.
Personally I think Ford should have sent Lincoln to the rest home in the Sky and just gone with JLR.
Despite the little blip, in 2010, not shown on the chart, all the automakers are in for some more tough times as the year, and recession/depression, continues. Ford WILL be in for some very rough times and have to do some more cost cutting to survive. I wonder if the American people will have the stomach for another automotive bailout?