Automotive News Europe - April 2020 - 8

AUTOMOTIVE NEWS EUROPE

COVER STORY

'We can master' this crisis
Xavier Mosquet is now advising American suppliers
and last month presented
a $50 billion aid plan to the
U.S. Congress.

avier Mosquet, a Detroit-based
managing director and senior partner at Boston Consulting Group, led a
team of 20 experts that advised President Barack Obama's automotive task
force in the wake of the 2008 Lehman
Brothers collapse. The U.S. government
eventually spent more than $80 billion
to bail out General Motors and Chrysler,
effectively taking over both companies
as they went through bankruptcy reorganizations. Mosquet spoke with Automotive News Europe News Editor Peter
Sigal on what's different today.
How does the coronavirus crisis
compare with the global financial
crisis, which really took hold after
Lehman Brothers collapsed in 2008?
That was a deep financial crisis that
stopped the economy for a long time.
Suppliers and automakers had had a
number of difficult years [before the
investment bank filed for U.S. Chapter
11 bankruptcy in September 2008],
then everything broke with the financial crisis. This crisis is happening
when most auto companies are reasonably healthy, which is a big difference. The other thing, and we will see
how this unfolds, but 2009 was a long
crisis, it took years to recover. In the
past, health crises have been more Ushaped or V-shaped. They tend to be
very deep and shorter because the underlying economic fundamentals aren't
destroyed. That's something we have
to be careful about.

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What are your recommendations to
help the European market recover?
If the governments do the right things
I think we can master it. It's not only
about the economics, but also about
how they manage the virus. We need
to go deep and fast. No. 1, support for
short-term unemployment would make
sure everybody has a few months of relief. If you don't give people adequate
resources when they are forced to stay
at home, you will create a social crisis
that is worse than anything else. No. 2,
government-backed emergency loans
for automakers are a good idea. If you
want automakers to extend faster payments to the supplier base, we will
have to give them financial support.
There is no way with the current balance sheets that they can do it themselves. I would also think about market
support [in the form of government
subsidies to encourage trade-ins of
older cars]. I'm saying this with a bit of
caution, but given the EU regulations in
terms of emissions, I might use some
of this stimulus to support electrified
vehicles. That would help manufacturers sell the cars in which they have the
most invested, and they need that mix
to be compliant with the regulations.
Should the EU reconsider its 2020
emissions standards and the potential fines for missing the target?
We have to be realistic here. We may
have to rethink how we approach the
threat of fines. There is no point in trying to support automakers on the one
hand, and then fining them for a situation over which they have no control of.
For consumers, buying expensive electric vehicles will be even more difficult
in the current context. ANE

loans on its books, but it did have aggregate net debt of 170 billion euros at
the end of last year. An increase in nonperforming loans or an unexpected drop
in residual values underpinning leasing
contracts for even a tiny sliver of its
portfolio could mean write-downs in the
billions. "The corona crisis represents a
challenge for which there is no comparison," VW Financial Services chief Lars
Henner Santelmann said in an emailed
response to questions from Automotive
News Europe. VW's financial unit says it
has relatively low credit risks and liquidity is "sufficient at present."
This year, after imposing restrictions on
movement and commerce in an effort
to slow the spread of the coronavirus,
Europe's national governments pledged
they would step in to help automakers
again, with loans, direct payments or in
a worst-case situation, potentially nationalization, something Jefferies' Houchois
doesn't favor. "Nationalization is never
a good situation," he said. "Even if you
don't have outright nationalization, once
you take public money you give up a lot
of your independence."
As an example, in 2008 the government
of French President Nicolas Sarkozy extended 3 billion euro loans in the form of
five-year bonds, at a rate of 6 percent,
to Renault and PSA Group, in return for
a pledge that they close no factories for
the duration of the bonds and cut no jobs
in France for a year. The government also
announced more than 2 billion euros
in aid to keep auto workers on payrolls
through production stoppages.
Those guarantees prevented the automakers from cutting costs when they may
have been most needed. A similar helping hand should be cautiously extended
today, analysts said. "An emergency loan
program is a good idea," Mosquet said,
because it would help automakers pay
the supplier base faster.

Car sales catalyst
In 2008-09, Europe's four largest markets -- Germany, the UK, France and
Italy -- announced the formation or extension of scrapping incentives, partly or
wholly financed by the government. The
programs kept vehicle sales from falling off a cliff, although the schemes ran
over budget by billions of euros, pulled
forward car purchases and skewed sales
toward low-margin models.

APRIL 2020

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Automotive News Europe - April 2020

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