George Kerevan: US and German carmakers looking to accelerate out of gloom

Published on Tuesday 9 February 2010 20:00

HERE'S a funny thing. Despite the global recession, 2009 was the sixth best year for car sales, thanks to ubiquitous "cash for clunkers" schemes.

The world's biggest manufacturing industry is actually in far better nick that anyone would have suggested 12 months ago.

Far from seeing off the car industry, the recession has sparked a fresh round of hi-tech competition among companies anxious to stay in the game. My bet is that this will favour Detroit and Deutschland, rather than China or Japan.

True, China has just overtaken America to become the world's largest single car market – in December, for the first time ever, more cars were sold in China than the United States; 735,000 vehicles compared with 656,976. But the Chinese mass market will be for basic cars with low added value and low unit profitability. Meanwhile, in the US and Germany, manufacturers are using the recession as a springboard for technological aggression. That should not come as a surprise: it is how both countries have responded to every economic crisis since the Second World War.

Consider the German situation, where one in seven jobs is dependent on cars. In Europe's crowded car market, with its endemic over-capacity in manufacturing, the media talk has been of retrenchment. European car sales are set to decline further in 2010, perhaps by another million vehicles.

But Germany has bucked the trend – domestic sales are up by 25 per cent against a year ago thanks to far more extensive public subsidies than in Britain. Scrappage schemes in other countries have benefited German car makers, who export three out of four cars built. In the UK, for instance, car imports in December surged 16 per cent. As a result, the British trade deficit has swollen to its widest in 12 months, despite the low value of sterling.

German firms are using this situation to their advantage by colonising the market for ultra-efficient urban runarounds that use only three litres of fuel per 100km. Regulators may be obsessed with expensive electric cars and hybrids, but these are decades from dominating the mass market. Toyota's problems with the Prius suggest the Germans have made the correct bet.

Stateside, the Detroit Three have done the seemingly impossible by slimming down their manufacturing capacity and axing historic but redundant car brands. But they are also on a technology kick: like the Germans, Detroit has decided that fuel efficiency, rather than batteries, is the key to expanding sales.

At the Detroit Motor Show last month, a defiantly optimistic Ford launched what it calls a "world car", based on its popular Focus design. The next generation Focus will be built in Europe, North America and Asia, with 80 per cent commonality of its parts. Ford believes that post-recession car buyers throughout the world have the same needs: fuel efficiency and cost-effectiveness. Currently only one in four vehicles sold globally is a small car. Ford's chief executive, Alan Mulally, thinks this market will increase by 25 per cent in a few years.

Historically, small cars yield small profits. Ford hopes that by sharing parts globally it can keep costs down and make money.

It is ironic that Toyota made its commercial breakthrough following the Arab oil embargo of 1973. As a result, American consumers turned to Toyota for small cars with good fuel economy. Now Toyota, the world's largest car maker, has been seduced by technological complexity and the management hubris that goes with it.

The other comeback route being taken by US car manufacturers is to add value by turning their products into entertainment centres and mobile offices. At last month's Las Vegas Consumer Electronics Show, the opening speech was delivered not by Apple chief Steve Jobs but by Ford's boss, Alan Mulally.

He attributes the company's resilience to something called Sync. This is Ford's own in-car communications and entertainment system, developed in partnership with Microsoft. It allows drivers to bring a mobile phone or digital media player into their car and operate it using voice commands or radio controls. Sync cars sell twice as fast as non-enabled ones.

Detroit is already discussing using directed, in-car advertising to create new revenue streams. Suppose you asked your in-car computer to tell you where the next petrol station is? And suppose Shell or Tesco paid to have the on-board computer direct you to one of its forecourts. Don't discount "Vorsprung durch Technik" or the American "can do" attitude just yet.