Automotive News Europe - April 2020 - 9

AUTOMOTIVE NEWS EUROPE

COVER STORY

Recession remedies
The economic crisis triggered by the collapse of
Lehman Brothers in September 2008 struck deep
and wide, leading automakers and governments
to quickly devise bailout plans. Some worked better than others, and some had unintended consequences that are still being felt today. Below is a
look at the highs and lows that resulted.

Italy

THE GOOD: After tough negotiations with the
U.S. government, Fiat, under CEO Sergio Marchionne, bought a majority stake in Chrysler,
which had declared bankruptcy. North America
has now become the economic engine of Fiat
Chrysler Automobiles.
THE BAD: Scrapping incentives pulled forward
car demand, hurting sales in the following years.
Sales were almost flat in 2009 at 2.12 million
-- then fell four years in a row to a low point of
1.3 million in 2013.
THE UGLY: Fiat's decision to limit investments
during the crisis resulted in an aging product
range. Market share in Europe fell to 5.9 percent
in 2014 from 8.6 percent in 2010.

Germany

THE GOOD: VW Group turned the tables on
Porsche's hostile takeover bid, bailing out the
heavily indebted Porsche and Piech families and
eventually acquiring the highly lucrative sports car

The incentives had a quick impact, with
sales in Europe starting to rise by spring
2009, and monthly volumes hit multiyear highs within months. The ECB delivered a mixed report on the success of
scrapping, noting that while it benefited
short-term auto demand, other sectors
of the economy may have been starved
of consumer spending. "Such measures
should be implemented with caution,"
the ECB said. Despite their downsides,
scrapping incentives may be a necessary short-term solution, analysts said.

AVAILABLE LIQUIDITY
Cash, securities and credit lines
available to Europe's top automakers;
figures in euros billion
VW Group*
Daimler*
Fiat Chrysler
PSA
Renault*
BMW*
* Automotive division
Source: Company annual reports

APRIL 2020

54.7
34.7
26.6
22.0
15.8
25.4

maker for a bargain price. VW ended up booking
profits on the deal worth more than twice the 7.8
billion euros it paid in cash for the equity.
THE BAD: Cash-crunched Daimler was forced to
generate fresh equity capital. It did so by selling
a 9.1 percent stake at heavy discounted prices
to the Abu Dhabi sovereign wealth fund, Aabar.
Aabar dumped its stake in October 2012, pocketing a fortune in the process.
THE UGLY: Schaeffler's attempt to acquire a
strategic stake of more than 30 percent in Continental backfired when Lehman collapsed and
investors rushed to tender their stock. Fearful
of massive write-downs on the 16 billion they
loaned to Schaeffler, banks kept the company
afloat to avoid impairments.

THE GOOD: Jaguar Land Rover's new owner, Tata
Motors, decided to look elsewhere for funding
to prop up the ailing premium automaker after
balking at the conditions imposed on a bailout,
including the right to veto management decisions, media reports said at the time. Tata found
alternative funding and JLR thrived under its
ownership.
THE BAD: Automakers didn't profit much from
scrappage because cars sold under the plan were
largely budget models made even cheaper by the
automakers' 50 percent stake in the discount. Many
automakers even stopped offering the cheapest versions of small cars rather than lose money on them.

"Without strong, short-term incentives,
I'm afraid car sales in Europe could drop
30 percent this year," said Stefano Aversa, Europe Middle East Africa chairman
of consultancy AlixPartners.
Pelata, the former Renault COO, agrees.
"Even if you do 'cash for clunkers,' there
is so much uncertainty for so many people right now. It's very rare that you absolutely need a car." The introduction of
scrapping incentives is also currently complicated by new emissions targets that take
effect this year. That means automakers
need to sell a much higher percentage of
costly electrified vehicles - battery-electric
car and plug-in hybrids -- to meet their targets or face potential fines in the billions.
In the past, car buyers -- many of them
entering showrooms for the first time
-- skewed heavily toward the cheapest
and least-profitable models. But even
with generous incentives, buying an
electric car will still be a stretch, analysts say. "If I had a support program,
I would probably bias it toward more
electrification," Mosquet said. "That
would help the manufacturers sell the
cars in which they have the most in-

It didn't do much to help UK automakers, which
mostly build more expensive models.
THE UGLY: The government refused to give van
maker LDV, then owned by Russia's GAZ Group,
a 30 million pound bailout loan, citing long-term
losses. The government did approve a much
smaller loan to facilitate LDV's sale to a Malaysian company, but it didn't happen and the van
maker went into bankruptcy.

France

THE GOOD: After warnings from Nissan North
America executives in mid-2008, Renault anticipated the crash by reducing its head count by
6,000 workers, trimming inventories and focusing on generating cash.
THE BAD: Renault and PSA each accepted fiveyear, 3 billion euro loans from the government to
fund innovation in return for a promise to protect
jobs. However, the deal prevented them from
reducing costs through plant closures and other
measures at a time when they were most needed.
THE UGLY: Almost everyone benefited from a
two-year car scrapping program -- except for
wrecking-yard owners. They complained that their
lots were overcrowded with scrapped cars, and
they could not sell parts for older cars any more
because so many had been taken off the road.
-- Peter Sigal, Nick Gibbs,
Christiaan Hetzner, Andrea Malan

vested, and they need that mix to be
compliant with the regulations."
He suggested, however, that emissions
fines might need to be reassessed in
light of expected government loans.
"There's no point in trying to support
automakers on one side and then fining them for a situation over which they
have no control," he said. Houchois argued that CO2 rules should remain in
place. "Changing EU rules would be difficult, because it has to be done by unanimous process," he said, "In addition, you
would be sending the wrong signals to
consumers about global warming."
But in the end, experts say, the coronavirus outbreak's impact on the auto industry will be largely determined by the
length and severity of the health crisis,
and to what extent consumers resume
spending habits. "In 2009, I was saying,
'Never again,' " Mosquet said, referring
to the magnitude of the Great Recession.
"We are now in a comparable situation.
Let's hope it's shorter than in 2009."
-- Nick Gibbs, Christiaan Hetzner
and Andrea Malan contributed

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Automotive News Europe - April 2020

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