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The automotive industry is under siege and in survival mode




FRANKFURT – It's a scary time to be in the car industry.

The internal combustion engine is under attack from electric challengers. Car ownership becomes optional at the age of uber. Supervisors all over the world are finding companies that do not do enough to cut CO2 emissions, even as buyers demand gas buzz S.U.V.s. Global car sales are escaping for the first time in a decade, disturbed by President Trump's growing trade war.

With so much to put on them at the same time, it is a little strange that companies like Fiat Chrysler and Renault considered joining forces to survive. Fiat Chrysler's decision on Wednesday night to withdraw its offer to merge with Renault, referring to governmental requirements in France, was another reminder that change is complicated for traditional car manufacturers.

The interrupted proposal to create the world's third largest automaker was a response to disturbances that threaten an industry that represents many of the world's factory jobs and is crucial to the economic fortunes of the United States, Japan and Europe.

New technology has unraveled industries such as entertainment, media, telecommunications and retail, weakening work safety of millions of workers and helping to burn populism. Carmakers, clearly, are next.

"It's going to be the biggest change we've seen in the last 100 years, and it's going to be very expensive even for the largest companies," said Erik Gordon, a professor at the University of Michigan Ross School of Business.

The big auto companies will spend well over $ 400 billion over the next five years, developing electric cars equipped with technology that automates much of the run, according to AlixPartners, a consulting firm. They have to retool factories, retraining workers, reorganize their supplier networks and rethink the whole idea of ​​car ownership.

For automakers, this pre-investment is a matter of survival. If they do not adapt, they may become obsolete. Nevertheless, no one is even sure if the customers are really willing to pay for the technology and whether it will ever make money.

Investors have already signaled who they think will come out in front of this transformation. The electric car manufacturer Tesla, despite all the problems, is still worth more on the stock market than either Fiat Chrysler or Renault. Uber is worth much more than the two combined, even after reporting a quarterly loss of $ 1 billion.

Increasing car ownership is a luxury rather than a necessity. In urban areas where more and more of the population lives, people can avoid parking costs and the expense of insurance by relying on tour services such as Uber or Lyft or hourly rental with services like Zipcar.

The dizzying relationship between consumers and cars has been accelerated by the rise of climate change as a powerful political problem, as well as worsening air quality in larger cities. Transport accounts for around a fifth of carbon dioxide emissions worldwide, according to the World Bank. Politicians, responding to public opinion, have forced car companies to improve fuel efficiency and reduce emissions. Carmaker's ability to push back has been weakened since emission failure scandals were uncovered at Volkswagen and other automakers, including Fiat Chrysler.

In the EU, car manufacturers must achieve average fuel economy equivalent to about 57 miles per gallon by 2021 or pay substantial fines. But European automakers are behind reaching the targets, partly because European consumers, like people in the US and Asia, have developed a taste for thirsty S.U.V.s. The result is that car companies face penalties of $ 34 billion, or about $ 37 billion, the research firm JATO Dynamics estimates.

The possible fines were one of the reasons why Fiat Chrysler sought a merger with Renault, which already has a long-term relationship with the Japanese automaker Nissan. The French company offers battery-powered cars like the subcompact Zoe that would have made it easier for Fiat to hit the emission targets.

Trump administration has rolled back the air quality requirements, but even in the United States, car manufacturers are under pressure. California and nine other states require manufacturers to meet zero emission sales quotas.

Regulators and a growing segment of environmentally friendly car buyers push the combustion engine against deterioration. China, UK and France list countries that are aiming to phase out cars that burn gasoline or diesel by 2040. Norway tries to convert completely into electric vehicles by 2025.

Auto managers in Detroit, Stuttgart, Yokohama and other key keywords provided these seismic shifts many years ago and have prepared.

BMW has sold an electric car, i3 since 2013. Nissan introduced battery-powered Leaf in 2010. Traditional car manufacturers such as GM, Daimler, BMW and Volkswagen responded to the decline in car ownership with their own routes, even though they have mixed success.

But despite their size, car manufacturers such as Fiat Chrysler, Ford or Volkswagen are a disadvantage for newcomers such as Uber or Dyson, the vacuum cleaner that develops an electric car. Old-fashioned automakers still receive almost all their revenue from cars with internal combustion engines, and must maintain factory networks that quickly become a financial drain when they are not running at capacity.

China emerges as a new competitor – and it's fighting saturation even in its home market. China absorbs only half of the cars that Chinese plants emit every year. Major manufacturers like Guangzhou Auto had been preparing to enter the United States to President Trump imposed 25 percent tariffs on Chinese cars.

In some estimates, half of all car industry jobs in Germany are in danger. Battery-powered cars have far fewer parts than cars that rely on gasoline or diesel, and threaten valve, piston and other parts suppliers in conventional engines. The most important part of an electric car, the batteries, usually comes from Asia.

Mergers as big as Fiat Chrysler and Renault can prove too difficult to pull off, but car manufacturers already form dozens of smaller alliances. This year, Ford and Volkswagen agreed to develop new commercial vans and pickups together to enter the market by 2022 and collaborate on technologies such as electric cars and autonomous vehicles. BMW and Jaguar said on Wednesday that they would work together to develop electric vehicle drive systems.

These partnerships can be difficult to manage, as Renault has recently experienced Nissan shows. The alliance of these automakers survived for almost two decades, but is wobbly after the arrest in November by Carlos Ghosn, its leader, due to financial failure. Mr. Ghosn nectar the charges.

Mr. Ghosn was keenly aware of the need for automakers to combine forces and, in part, hardened his relationship with Nissan. In many ways, John Elkann, the Fiat Chrysler chairman, and Jean-Dominique Senard, the chairman of Renault, tried to take his view a major step forward.

Major alliances are crucial for having a path to success in this transformative time, says Jim Press, former Deputy Head of Chrysler Deputy.

"Companies should not do it alone."



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