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Car Business' Transformation - Across The Pond

Prophet and Loss

Alistair Weaver
Jan 1, 2008 SHARE
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Ten years ago, I was still at university. Bill Clinton was in power, Osama Bin Laden was known only to the CIA and Britney Spears was grappling with puberty. The internet was still someone else's phenomenon and I was sneered at for owning a cell phone. Every time anyone heard the tell-tale ring, hoots of derision would echo down the dorm's corridor.

How different life is today. Bush is in the White House, Bin Laden is the world's most wanted man, and Britney has had two kids, two marriages and a shave. The internet is omnipresent and you get hoots of derision for having the wrong type of cell phone. If you can't simultaneously search for hardcore pornography while checking a spreadsheet and talking to the boss, you're no longer on the pace. Mobiles have even created a whole new language. My girlfriend sends me text messages that say: 'I will b l8' or 'No sex 4 u 2nite.'

In the past decade, the world has galloped along at a terrifying pace-and it's not all technological. The car world has also changed almost beyond recognition. In the first three quarters of 1997, Ford made $4.5 billion, with the US domestic market propping up disappointing results in Europe. In 1999, when Ford bought Volvo, it was the world's most profitable car maker. A year later, it completed its luxury brand portfolio by buying Land Rover.

Nissan, meanwhile, was in deep doo-doo. By 1999, the Japanese were 1.4 trillion yen in debt. When Renault's execs paid $5.5 billion for a 39 percent stake that year, most people thought they'd been hitting the Pernod.

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Contrast that with now. When Ford made a small second-quarter profit in 2007, it was met with widespread surprise. Not since 2005 had Ford returned a profit and the 'success' was in part due to the sale of Aston Martin. By the time you read this, Jaguar and Land Rover might also have been sold, and the long-term future of Volvo is less than secure. The glamorous, multi-brand strategy of a decade ago has been slowly and painfully unravelled.

In the meantime, Nissan has become absurdly successful. I interviewed Carlos Ghosn last month and he admitted success had brought some absurdities with it. "People say we are struggling with a return of 7.4 or 7.5 percent," he said, laughing. "They say we are a distressed company. The expectations are so high that even a small disappointment is considered a slump."

The car business is continuing to transform at an extraordinary rate, much of it prompted by factors beyond the manufacturers' immediate control. At the Frankfurt show, all the talk was about environmental sensibility. It didn't matter that BMW unveiled an SUV smothered in dry ice (neat carbon dioxide) because it had a hybrid engine. Even Porsche will have a hybrid SUV by the end of the decade.

In some countries and social circles, it's no longer cool to drive a large car. In London, a group calling itself the Alliance Against Urban 4x4s has gained widespread support for throwing mud at the SUVs of harassed young mothers. In Los Angeles, a colleague was recently offered the pleasures of the flesh simply for turning up in a Prius. Who would have thought-even five years ago-that a dumpy Toyota would be 'sexier' than a Porsche?

Such is the pace of change that it's becoming more difficult to predict the future. My brief for this month was to comment on future trends, but this is a devilish task. While anyone with a basic knowledge can point to the movers and shakers of 2008, few (even inside the industry) can predict the trends of 2013 with any great confidence.

For what it's worth, I think diesel power will finally crack the US market and the Europeans will lead the charge. Audi will launch its brilliant 3.0-liter V6 in 50 states next year. Once US buyers have woken up to the refinement, torque, economy and range of a modern turbodiesel, few will revert to gasoline. In the UK, we once laughed at such a suggestion, but no more.

If diesel does take off in the world's biggest market, then we may come to see the hybrid as no more than a passing fad. The cost/efficiency ratio is so poor that most manufacturers see it more as a marketing exercise than a genuine alternative. As the Volkswagen group's head of powertrain, Wolfgang Hatz, said recently:"If the consumer demanded that every car was a hybrid, we would all go bust, including Toyota."

In the business world, we'll see the continuing rise of the Koreans, the Chinese and the Indians, in that order. But America's 'Big Three' will survive. In an increasingly brand-obsessed world, Ford's suits will come to regret flogging Jaguar and Land Rover at a time when they'd already taken most of the pain. But what do I know? Erstwhile British Prime Minister Harold Macmillan got it right when he told a young reporter what worried him most: "Events, dear boy, events."

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By Alistair Weaver
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