Thomas White Global Investing
Germany
Germany Stamp
September 30, 2011
A Postcard from Europe
Germany: Motor show signals smoother ride for auto industry

Frankfurt Motor Show

The Frankfurt Motor Show not only dazzled visitors with the unveiling of nearly 90 car models, but may also be a window into the overall health of the global economy.

If all goes well, the F125! can drive itself. Well, almost. The automobile is being designed to not just overtake or change lanes on multilane one-way roads automatically, but also respond to the verbal commands and gestures of a largely passive driver.

The F125!, of course, is not about a virtual game or sci-fi novel. It was one of Mercedes-Benz’s most popular entrees at the recently concluded Frankfurt Motor Show and, like dozens of other concept cars displayed there, it gave the world a peek into the future of the automobile industry.

Indeed, if there is anything that comes close to being a crystal ball for the auto sector, it is the Internationale Automobil-Ausstellung or International Automobile Exhibition that Frankfurt hosts every other year. The motor show, which was first organized way back in 1897, is considered the largest of its kind in the world. Nearly 1,000 exhibitors from 32 countries participated in the 64th edition of the show this year, which was held between September 13 and September 25. Reportedly, more than 800,000 auto enthusiasts as well as those in the global automobile business community visited the show. But to the world at large, the event held a much greater significance than just an enormous collection of incredibly desirable cars. With the auto sector often viewed as a window into the health of the global economy as a whole, the Frankfurt Motor Show and the close to 90 car models unveiled at the exhibition, not only dazzled visitors, but also appeared to offer a glimmer of hope that the global economy could be doing better than it is perceived to be now.

Numerous newspaper reports and blogs indicate that the overriding sentiment at the motor show was one of cautious optimism. Automakers, especially German ones, were happy that the European debt crisis and the slowdown in the rest of the world had not yet affected car sales. For instance, the CEO of the BMW Group was quoted as saying that his company continued to record sales gains even in a worryingly stagnant economy like the U.S. A top executive of American automaker General Motors sounded equally sanguine, telling the New York Times that sales in Europe remained in an uptrend. A representative of Volkswagen’s high-end subsidiary, Audi, too said that in August, its U.S. sales showed a 15% annual jump. He added that dealers and the used-car markets, which were usually the first to feel the impact of a slowdown, remained upbeat, while growth prospects in large emerging economies like China had moderated, but continued to be positive.

The optimism notwithstanding, carmakers seemed cautious about not being complacent. Instead, they appeared to be revving up for changes on the road ahead. For instance, there is increased focus on smaller, inexpensive cars now, given that the buying power of a large section of consumers in the developed world, especially European cities, has reduced due to the economic crisis, and the class of first-time buyers in developing countries is expanding by the day. With this logic, Volkswagen launched its new small city car — the Up! — at the exhibition. In another trend, heavier vehicles seem to have taken the backseat and manufacturers these days are finding innovative ways of making their cars as light as possible. It is not hard to understand why. Owing to the rising demand from emerging markets, energy — be it petroleum, electricity, or some other fuel — is projected to become increasingly more expensive across the globe. Therefore, carmakers have realized that they will gain from making lighter, more energy-efficient vehicles. In fact, so strong is the accent on lightness these days that there is a new executive position called “Head of Lightweight Vehicle Strategy” at Jaguar Land Rover.

Fortunately for the auto sector, many industry leaders revealed at some of the press conferences at the exhibition that they were prepared for any slowdown in the near future. Having realized that their inability to cut production quickly cost them dearly during the 2008 global auto sector crisis, several manufacturers made public their plans to scale back operations, if necessary. For example, Opel, which is owned by General Motors, declared that it had signed agreements with its labor force to be able to reduce output swiftly, while the BMW CEO said that his group had already increased efficiency in production.

With this, the global auto industry appears all set to continue repeating its recent good performance, but only if economic conditions do not deteriorate substantially. Clearly, just like the Mercedes-Benz F125!, the operative phrase for the industry is “if all goes well.”

 

Image Credit: Autoviva.com under Creative Commons license

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