Finding opportunities in the wreck of the auto industry
Credit to Author: BEN KRITZ, TMT| Date: Wed, 22 May 2019 16:19:10 +0000
THE global automotive industry is undergoing what people in the business optimistically call “evolution,” but what any other rational observer would call a “disaster.” Rapid shifts in technology, changing attitudes towards environmental issues, politics, and self-destructive business practices are wreaking havoc on a sector that once seemed monolithic. While the impact of this is not yet being felt strongly in this country, the portents are grim. The automotive market is one of the few industrial sectors that the Philippines has put effort into developing, and it is risking have all its efforts be for naught if it does not quickly adapt.
Over the past two years, major automakers from Europe and the US have suffered one setback after another. Volkswagen was exposed in a global-scale emissions cheating scandal, which in turn revealed that other carmakers were also doing the same thing, although not on the same scale. At about the same time, an extensive investigation by German journalists revealed that several major automakers – Volkswagen, Audi, Porsche, BMW, and Daimler-Benz – have for years conspired to manage competition among themselves; VW’s emissions-cheating scandal was one result of this, as the carmakers had agreed to limit technological advances that would give any of them an edge over the others.
At the end of last year, the glue holding the massive Renault-Nissan-Mitsubishi conglomerate together, one-time automotive god Carlos Ghosn, was ousted and jailed in Japan on corruption charges. Ghosn’s downfall probably spelled the end of the long era of “rockstar” CEOs, which has been further reinforced by the tribulations of electric car manufacturer Tesla and its colorful head Elon Musk. Tesla has not completely failed yet, but it is hemorrhaging cash and continually missing production and financial targets, and otherwise projecting the image of a company in dire straits.
And finally, the stalwarts of the US auto industry, General Motors and Ford, are both undergoing periods of significant retrenchment in part due to the destructive and directionless trade policies of the current US government. This week Ford announced it would cut 7,000 jobs, the latest move in a series of cost-cutting measures, including eliminating 5,000 jobs in Germany, shutting down its heavy truck business in Brazil, closing two factories in Russia, and ending production at another in France. Rival General Motors has experienced similar woes, closing five North American plants and two overseas.
Not every automaker is having such dire problems, but nearly every one has seen its markets shrink. Here in the Philippines, sales have been reduced since the beginning of last year. This is largely blamed on the increase in fuel and vehicle excise taxes, but the weakness of the industry on a global scale suggests that the causes are more complex, and not likely to be easily resolved.
In this environment, it is more than a little dubious that virtually the only industrial/manufacturing development program the country has is the Comprehensive Automotive Resurgence Strategy (CARS), a legacy of the rare gift for cluelessness of the former Aquino administration. Building hundreds of thousands of low-cost automobiles was never a good idea in a market that has some of the worst air quality in the world and loses $2 billion a day due to traffic gridlock, and now potential export opportunities are shrinking as well.
What the local auto sector and the government needs to understand is that the changes in the industry are still evolving, and they are more or less permanent; circumstances are not going to return to the salad days of two or three years ago, and it is best for all concerned that they do not. Instead, industry stakeholders should approach the challenges of survival and growth realistically: The local market needs to reduce the number of private automobiles already in existence, and needs to replace those that the country’s infrastructure can bear with more environmentally responsible products. Electric vehicles, gas-electric hybrids, and hydrogen fuel cell technologies are certainly part of the formula, but so are other less obvious considerations – sustainable manufacturing processes, particularly for base materials such as rubber, plastics, and steel, weight- and fuel-saving design, and proper recycling of end-of-life vehicles.
There are opportunities to make the automotive sector thrive, but those will only be realized if the industry and policymakers take a radically different approach. Ending the local automotive industry as we know it by way of retooling it will take a great deal of imagination and effort, may come at great cost, and may result in a much smaller sector than originally envisioned. That, however, is far more preferable than the almost certain alternative of having the local automotive industry end abruptly due to its inability to adapt.
ben.kritz@manilatimes.net
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