A New Century Dawns for the Automobile Industry

The automobile industry was born in 1908, the year when General Motors was created and the first Ford Model T was produced. It died in 2009, at least in its current form, with the bankruptcy of that same General Motors.

The collapse of the world’s number one automobile company was the most spectacular industrial event of 2009, but it was not alone. Four shocking events marked the tipping point when the twentieth century’s flagship industry suddenly entered a new era. Each of those four events was the outcome of a silent transformation, a tectonic shift that had been in progress for years.

1. The fall of General Motors. On June 1, 2009, General Motors filed for bankruptcy. It was the end result of a decade of restructuring and loss of market share in the United States. The company succumbed beneath the weight of its own size, its employee benefit obligations and the onslaught of Japanese manufacturers. It had been the number one company since the 1930s, when it dethroned Ford thanks to its expertise in market segmentation, with dozens of different brands designed for different markets, and its rational industrial organization under the aegis of its legendary chairman Alfred Sloan.

For almost 30 years before its collapse, General Motors, the biggest company in the sector, had been gradually falling behind, paralyzed by its own size and diversification. The company was locked into benefit obligations (such as pensions and health insurance) with the unions that had been negotiated during profitable periods and, like its cousins at Ford and Chrysler, was unable to withstand the appearance on its own turf of Toyota, Honda and Nissan factories, which were much more competitive and produced better quality vehicles. General Motors was saved at the very last minute through its nationalization by the American government in 2009, but its fall symbolizes the end of industrial gigantism and of a certain kind of American dream.

2. The decline of Toyota. Nobody saw the catastrophe coming. This symbol of Japanese manufacturing excellence was hit harder than its competitors during the crisis and has not managed to get back on its feet. On the American market, the source of its previous global success, Toyota has seen its sales fall by almost 25 percent this year, more than Ford, Hyundai or Volkswagen. In the emerging countries its market share has crumbled even further.

Even worse, the company has issued a string of product recalls because of problems with quality with some models, damaging its reputation on the highly demanding American market. Toyota’s mass production of low-priced cars with no character has had its day – especially in light of its competition in that field from new Korean star Hyundai, and of course from the Chinese. So it’s goodbye to outgoing CEO Katsuaki Watanabe and hello to Akio Toyoda, grandson of the company’s founder. His mission is to renew the foundations of the company with regard to quality, while adding that touch of glamour which Toyota models have previously lacked.

3. The rise of Volkswagen. The automobile market may be shifting to Asia, but one European company has still managed to make the best of it. The German manufacturer has withstood the crisis better than its European and Japanese counterparts because it has been able to take advantage of its links in emerging countries such as Brazil and especially China, which has become the world’s leading market and where Volkswagen is number one, ahead of GM and Toyota. The icing on the cake is that, in return for $2.5 billion, VW has been able to buy into the Japanese company Suzuki, which is number one in the Indian market. VW’s other advantage is its many brands, led by the success of Audi, which is now on a par with BMW and Mercedes. Its tenth brand is by no means its least prestigious: within a year from now VW will gain total control of its cousin Porsche. From now on VW will be the one calling the shots in global consolidation. Let’s hope they don’t fly so high that they get end up getting scorched.

4. The electric craze. The electric car is all anyone’s been able to talk about for the past year. It’s supposedly going to save the automobile industry by repainting it with a lick of green. Toyota, which was first off the blocks with its hybrid cars, is now stunned to find itself being outdone. Renault Nissan is promising an 100 percent electric car within two years, as are the Americans and even the Chinese. Yet if the commercial potential, which lies with ecologically-aware urban consumers, has been clearly grasped, the business model is still in its infancy. On the electric car the most important component will no longer be the motor, but the very heavy and expensive battery that will replace it. Will the battery have to be paid for, rented or exchanged? Nobody yet knows the answer. The only certainty is that this sector will represent no more than 10 percent of the market in ten years’ time. But it does show the way to the future.

Thus, America is no longer the center of the world of automobile manufacturing, Japan is no longer the only alternative for the future and technology is opening up new horizons. These three trends will shape the next ten years, which will certainly also be marked by China and India’s rise in power, and by the race for less polluting new forms of technology. The birth of a new industry is underway.