Carmakers suffer around the world

By Jorn Madslien
Business reporter, BBC News

Japan believes investment in technology will survival

Car sales have fallen sharply across the world in recent months.

Thousands of jobs have been lost as a result, spurring government ministers into action, though with varying results.

Here is a snapshot of the situation in different parts of the world.

NORTH AMERICA

Sales of cars and light trucks in the US have plunged in recent months and are expected to end the year just below the 10 million mark, 25% below the 2008 figure.

The US vehicle market is "now entering its 19th month of recession", according to consultants PricewaterhouseCoopers (PwC).

But with the bankruptcy and subsequent sale of Chrysler behind us and the restructuring under bankruptcy protection of General Motors, the situation is looking brighter.

US consumers are no longer impressed by discounts on cars

"Light vehicle sales have bottomed out," PwC observes, predicting stronger sales during the second half of the year as a US government scheme that pays drivers to scrap their old cars and buy new ones comes into effect.

"We expect the scheme to boost sales," says Calum MacRae, PwC automotive analyst, though the US scrappage scheme's complexity and "incentive exhaustion among US consumers" could limit its overall impact.

EUROPEAN UNION

European Union (EU) members were quicker to introduce scrappage schemes than the US.

And given that car buyers in the region have not been inundated with discounts and offers in the past - the way consumers in the US have been - the schemes have helped prevent sales from falling as sharply.

The European car market is thus expected to end the year close to the 15 million mark, some 15% lower than the 2008 figure, PwC predicts.

Carmakers are selling cars already built before manufacturing more

But this relatively better performance should not be seen as a sign of health, nor should it be seen as an endorsement of the scrappage schemes.

Indeed, across the EU, production output has fallen much sharper than sales as the companies have focused on selling off cars already produced before producing new ones.

The strategy is working, up to a point, in that major buyers - such as car rental firm Hertz - are finding it hard to get enough cars in some cases; a dramatic reversal of the situation seen early this year.

But Europe's carmakers are facing a much greater challenge to the long-term viability of producing in this high-cost region, namely the collapse of some of their most important export markets - including the US, which was important because of its enormous size, and Russia, crucial because of its rapid growth and enormous potential.

EASTERN EUROPE

In Eastern Europe, carmakers have taken a massive hit this year, with sales in Russia expected to come in 40% below the 2008 figure at 1.7 million units, and Ukraine and Turkey experiencing a similar slump.

Demand slumped after foreign carmakers built plants in Russia

This is not because people in the region no longer want cars - they do - but rather as a result of last autumn's credit crunch, which abruptly cut off the flow of easy credit for car buyers.

During years of soaring sales growth in the region, a string of carmakers set up factories in the region to take advantage of the market's enormous potential, contributing to a painful overcapacity in production. Carmakers across the board have for months been cutting output sharply to adjust.

"Neither Russia nor Ukraine are geared for exports," observes PwC.

ASIA PACIFIC

Within Asia, there has been a dramatic shift in the power balance between the two main automotive producing countries, Japan and South Korea.

Both saw car shipments slump during the first three months of the year, though Korea's 36% fall in exports seems small compared with Japan's jaw-dropping 63% fall in exports.

The governments in both countries were swift to step in to assist their incumbent companies, with Korea offering tax incentives while Japan opted for cash injections by the government via "scrappage and incentives to adopt green technology", according to PwC.

In spite of this, Japan is expected to produce just 8.1 million vehicles this year, 25% fewer than last year. Albeit not quite as severe, Korea's production is set to drop by about 700,000 units to 2.9 million units this year.

Car sales soared in China after the government introduced incentives

Asia's emerging automotive markets China and India are still growing, but growth is slower than in the past and is mainly thanks to government incentives.

In China, sales grew 7% during the January to March period before soaring 34% in April and 36% in May on the back of government-funded incentives.

That figure includes trucks and buses: strip that out and passenger cars rose almost 48% in June from the same period a year earlier.

Chinese vehicle sales are expected to end the year up 18% on 2008.

In India, carmakers are pinning their hopes on an economic boost from the election of a new government, led by the Congress-party. Sales are expected to pick up from a flat first half of the year to end the year 5% higher than in 2008, at 1.7 million units.

Small car exports from the growing number of hi-tech factories in the country is set to boost production levels even further, so by the end of the year some 2.1 million cars should have been produced in the country, 8.7% up on 2008.

SOUTH AMERICA

In Brazil, the government has cut taxes to stimulate the motor industry after car sales fell 25% during the last three months of 2008 when compared with the same period a year earlier.

Again, it was largely access to credit rather than a reduction in demand for, or at least desire for, cars that caused the slump.

A 100% industrial products tax on small-engined cars has been reduced, sending sales soaring.