Sales are declining rapidly worldwide. If there is one thing anxious consumers can postpone, it is the purchase of a car. Economic crises normally affect one major market, which allows large car companies to make up for the difference in other countries. But this time the financial crisis is shaking North America, Asia and Europe at the same time.
Suppliers are likewise threatened. Banks have cut off funding for necessary investments. Some suppliers are already on the verge of bankruptcy. If the biggest manufacturer of rear-view mirrors or door locks fails, carmakers will be forced to stop production, and it will be difficult to quickly find replacements.
Providing consumers with financing is also becoming more difficult. Part of the reason VW, Audi, Mercedes-Benz, BMW and Porsche have enjoyed such phenomenal sales growth in recent years is that they have offered customers attractive leasing and financing packages. Now the carmakers' lending divisions must pay high interest rates to obtain the necessary funds on the capital markets, if they can borrow at all. As a result, they can no longer attract customers with low-interest car loans.
Ultimately, the entire business model of VW, Mercedes-Benz and BMW is beginning to falter. It is based on the assumption that carmakers can constantly increase sales by constantly introducing new models. This is the only way they can guarantee jobs. For car companies, standing still is in effect moving backwards. Companies that are not increasing sales are in fact shrinking, because productivity in their plants grows by 5 to 10 percent every year.
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Still, it's difficult not to think that some manufacturers are merely trying to divert attention away from their own mistakes. Many of the problems are homegrown. The companies placed too much emphasis on growth at all costs, while at the same time neglecting to develop fuel-efficient cars earlier in the game.
And then there are the business models (always based on assumptions) that are not holding up in the present day (unanticipated) reality:
BMW based its leasing calculations on an estimated residual value for the cars when customers return them after three or four years. But this value has little to do with reality these days, because used car prices fall during an economic crisis. Besides, more and more customers who purchased a BMW on credit can no longer afford their car payments. In the first nine months of this year alone, BMW had to establish reserves of more than €1 billion ($1.25 billion) to make up for the difference, and more reserves are likely to follow.
The second risk for BMW lies in the fact that customers are increasingly buying smaller models, or at least are opting for smaller engines in the larger 5 Series and 7 Series.
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Daimler [too] has a large Achilles heel: Daimler's shareholder structure. Because it lacks a major shareholder, the company is constantly at risk of being bought up and dismantled.
For this reason, the Stuttgart-based carmaker has to be managed using the same criteria that led General Motors to the brink of ruin: It must earn high short-term returns and pay large dividends. This is the only way to bring up the share price and thus prevent a takeover. But, under these conditions, how can the company be expected to continue designing cars that lead the world in technology, design and quality? And how can Mercedes-Benz justify its high prices in the long term?
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[E]ven the VW Group faces a serious challenge. The board must correct its model strategy. Until now, developers at VW headquarters in the central German city of Wolfsburg were fixated on developing more and more powerful engines. In addition to a 16-cylinder engine, the company has two different 12-cylinder engines -- which not even BMW or Mercedes-Benz can offer. But this does Volkswagen little good, because smaller, fuel-efficient engines are now in demand.
