Page last updated at 22:27 GMT, Tuesday, 30 September 2008 23:27 UK

Car industry squares up to economic storm

By Jorn Madslien
Business reporter, BBC News, Paris Motor Show

A car
The car industry is getting ready to unveil new models

The global car industry is gathering in Paris this week for its bi-annual jamboree that consists of a slew of press briefings, model launches and lavish events.

But although the parties are still large, the industry itself is dwindling - in more ways than one.

For the manufacturers, selling the biggest cars that used to bring in the most margin has become almost impossible.

During the first half of this year sales of large sports utility vehicles (SUVs) in Europe fell almost 45%, while sales of large cars and people carriers tumbled almost 30%, with executive saloons also suffering, according to Jato Dynamics.

Forecasts published by analysis firm Global Insight, ahead of the recent chaos on Wall Street and in the City, forecast a 6.1% fall in European car sales this year, with a further -albeit not quite as sharp - fall next year of 4.5%.

The slow response of most carmakers shows that the EU needs to keep up the pressure with challenging, long-term CO2 targets
Jos Dings of environment lobby group Transport & Environment

Dealers are finding it hard to raise finance for their customers, according to industry publication Automotive News Europe, amid mounting fears that Europe might slide into recession.

"There's clearly a lot of nervousness about the 2009 numbers," says automotive industry analyst John Lawson of Citigroup.

Minor models

It is not only sales and profits that have declined sharply in recent months, leading every carmaker here to look for ways to slash costs and trim their labour force.

Along with the shrinking size of the cars on offer, their fuel consumption and their CO2 emissions are also reduced - along with their prices and hence the manufacturers' profit margins.

"Manufacturers with a lead in fuel efficiency will benefit. Whether they can translate that into an improvement in profits is the question," says automotive analyst Michael Tyndall of Nomura International.

But look beyond such gloomy chatter, of which there is plenty going around in the Big Croissant these days, and there are some truly striking new releases.

Journalists investigate the BMW 7 Series
BMW will introduce a petrol-electric version of its new 7 Series in 2009

One notable trend is the growing line-up of small, yet luxurious, concept vehicles such as the Audi A1, the BMW X1 - a tiny SUV - and the Mini crossover.

The idea behind all three is that drivers should not have to compromise to downsize, while the manufacturers should not have to compromise with regards to their profit margins.

Kia is here with a display of no fewer than seven versions of its boxy Soul, and there will also be a new Mazda city car.

Toyota's iQ, Hyundai's i20, Nissan's Pixo and Ford's re-released Ka add to a line-up of even smaller cars entering this increasingly crowded but fast-growing segment of the automotive market.

Changing priorities

But it is not the crowds that pose the biggest challenge for the automakers. Rather, they are faced with the eternal problem of making money from small cars.

This is made all the more difficult when the small models are brought to market at a time when the chaos on Wall Street and in Washington is whipping up waves of frugality among consumers.

We would be very surprised if many of the all-electric sports cars, and other models that have been making headlines, hit showrooms within forecast time-frames
Evert Geurtsen, Nice car company

So make no mistake; although many of the models will be branded as "green" in one form or another, every carmaker here knows full well that popular concerns are shifting swiftly from global warming to an international economic chill.

In such a climate, even the car industry's insistence that emissions are coming down does little to bring back the buyers.

Though while it seems the consumers no longer care about green issues in the way they used to, the regulators in Brussels do.

And according to their yardstick, the cuts are too slow. In short, the car industry is on a steadfast course towards failure. Nobody but nobody expects the industry to be able to comply with anticipated European Union legislation.

The GM Cruze
GM's Chevy Cruze will be officially unveiled in Paris

Jos Dings of environment lobby group Transport & Environment (T&E) insists that "the slow response of most carmakers shows that the EU needs to keep up the pressure with challenging, long-term CO2 targets".

And that is exactly what the EU policy makers appear to be doing, in spite of hard lobbying by the automotive industry, which is desperate to have the goalposts moved.

Car manufacturers have worked hard to have the deadline pushed back, the requirements softened and the fines for non-compliance reduced from a proposed 95 euros per gram per kilometre (g/km) for each car.

Lawmakers in Brussels last week stuck to their guns and insisted on the timely introduction of legislation that will demand that CO2 emissions be cut to an average of 120g/km by 2012, from the current EU average of 158g/km.

Industry officials insist the tighter regulations will upset the fragile economics of an industry already in trouble.

As such it could see redundancies accelerated, they argue, eventually leading to tens and perhaps hundreds of thousands of jobs being lost.

It is a paradox, some industry officials point out, that the vote in Brussels coincided with the passing of a $25bn (14bn) support package for Detroit's Big Three carmakers - General Motors, Ford and Chrysler.

This was ostensibly to help them produce cars that emit less CO2, though rival firms see it as a protectionist bail-out package that discriminates against non-US carmakers.

Kinetic energy

Be that as it may, the stricter emission rules will nevertheless leave the automotive sector with no choice. Its search for less polluting engines must go on.

A car engine
The challenge for manufacturers is to introduce more efficient engines

Much is still resting on ever-cleaner diesel engines, which have largely been pioneered by German and Japanese firms, though there is also a broader range of diesel-electric or petrol-electric hybrid models on display.

Hybrid pioneer Honda will unveil a model that aims to woo Toyota Prius customers, and there is an incredible array of light hybrids, where small and relatively unsophisticated batteries are used to store kinetic energy captured during braking.

The hydrogen story is also given a further push, with Suzuki making a splash with its fuel cell powered SX4-FCV.

Electric switch

Yet the strongest hint at what is set to drive the industry forward in the years to come lies in the battery technology showcased by a number of carmakers at the Paris show.

The production version of the Chevrolet Volt, first seen in the flesh at General Motors' Centenary in September, will be on display at the Paris show.

The Volt is essentially an all-electric car designed to be plugged into the mains. Fully charged, the car's lithium-ion batteries will give it a range of 40 miles.

That range is extended infinitely by its ultra-efficient petrol engine, which is not designed to propel the car forward as is the case in contemporary hybrids.

According to Alex Molinaroli, president of Johnson Controls Power Solutions, which produces batteries for the car industry, conventional engines are either being supplemented or increasingly replaced by electric power - whether it is generated in power stations or by internal combustion engines.

The motor show logo
The motor show is one of the industry's key events

"Over the last three to six months, thanks to high fuel prices and the [tighter emissions] standards set in Europe, we've seen more energy and focus from the automakers than in the last three to five years combined," he tells BBC News.

Flagship models from BMW and Daimler are taking a lead in the luxury segment with the launch of a BMW 7 Series and a Mercedes S-class, both kitted out with ultra-efficient lithium-ion batteries during 2009.

Several carmakers are even testing all-electric versions of their current models, including the Smart and the Mini, with the promise that production models could be with us by 2010.

But sceptics remain.

"It's easy to get caught up in talk of an electric car revolution," says Evert Geurtsen, co-founder of the electric car company Nice.

"However, we'd be very surprised if many of the all-electric sports cars, and other models that have been making headlines, hit showrooms within forecast time-frames."

Can a petrolhead be an eco-driver?
11 Aug 08 |  Magazine

The BBC is not responsible for the content of external internet sites

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Americas Africa Europe Middle East South Asia Asia Pacific