Looking into the future

David Booth expects 2010 to be another tough year for the majority of the world's car makers.

The ruse, is, of course, obvious. Whether you be Nostradamus, the shaman reading palms outside a trendy night spot or whatever poor schmuck has been conscripted to write this newspaper's online horoscope, the trick is always to speak in such fuzzy platitudes that no concrete argument can dispute your vague prognostications.

Specifying exactly what the future might hold, on the other hand, is almost a sure ticket to failure. Today's best data can never take into account tomorrow's random calamity and, though there be a few brave souls that actually made money during this last Great Depression by hedging their bets, almost all would admit that their brilliant fiscal forecasting was also a fortuitous piece of luck. Nonetheless, trying to predict the future is always a great exercise forcing us to examine the past for clues of what tomorrow might bring.

My first prediction is also the only one that I can virtually guarantee will come to fruition. The worldwide price of petrol will increase. That's, of course, a no-brainer, I already hear you saying. But, it's not the simple rise of the price of the crude that's important but how that increase will occur that determines its long-term effect on the automotive industry. The two most recent spikes in the price of petrol have been foretelling. When petrol first rose past the magic $3.00 (Dh11) a gallon in 2005, American consumers were livid with indignation. Newspaper headlines trumpeted the end of capitalism, even the disappearance of the car, until prices retreated to a more manageable level.

Yet, since then, petrol has pushed well past 2005's highs with nary a whimper from those very same consumers. Only when the $4.00 (Dh14.50) a gallon barrier was broached did their angst once again boil over, and even then with far less alarm. If the recent past is indeed any indicator, American consumers' agitation at rising fuel prices is a fleeting thing, causing momentary hysteria, but quickly forgotten when the spike plateaus or recedes even slightly.

This could be bad news for the environmentalists. Virtually all proponents of the green revolution are counting on the high price of petrol finally forcing Americans out of their hulking SUVs into the cosy confines of subcompacts and hybrids. But, as recent history has shown us, such shifts are hardly dramatic and often temporary. After a brief flirtation with the hybrid during the original spike in fuel prices, America is once again buying the pickup it really covets. The only way that a significant, long-term migration away from the gas guzzler will come about in North America is if there is a seismic jump in petrol prices, the kind that can only come from a dramatic hike - say, to $6.00 (Dh22) a gallon - resulting from government levies.

For the very same reason, I suspect that electric cars will remain bit players in North America, despite Nissan CEO Carlos Ghosn's contention that EVs will account for 10 per cent of global sales by 2010. America is the most coddled civilisation in history - this is a market that invented the drive-thru lane because "fast-food" restaurants weren't convenient enough. They are unlikely, therefore, to willingly accept the many limitations - performance, range, charging times - of the electric car. Hybrid cars, for instance, barely account for three per cent of sales despite the incredible level of media adoration they've enjoyed for the last 10 years. Only a long-term, very dramatic spike in the price of petrol will make electric cars attractive to Americans.

One of the worst by-products of all that intransigence, however, is that diesel engine will continue to flounder in North America. Europe, of course, immediately adopted the compression engine as its solution to its higher-priced petrol. In so doing, all manner of impressive engineering companies - Volkswagen, BMW, Mercedes, Fiat et al - devoted much research into oil burners, which are now the equivalent of petrol engines in performance but with better fuel economy. Proponents here have long pointed to the popularity of diesel-powered VWs and Mercedes as a harbinger for growth in the segment, but BMW's relative lack of success with its diesel additions reveals that to a be a brand-specific niche. All told, that points to an America still relying on traditional petrol-powered automobiles for the foreseeable future.

That's not to say that fuel economy won't be a driving factor. Indeed, if Chrysler, for instance, is to have any success at rejuvenating itself, it will be a result of Fiat-based technology and cars with better fuel economy than the company's current lineup. Despite Fiat/Chrysler CEO Sergio Marchionne's protestations, Chrysler is, at best, the shell of a car company, likely to become more an exercise in rebranding foreign products with a familiar name rather than a source of actual engineering.

That's if the brand survives at all which, considering Chrysler will have to wait another 18 to 24 months for influx of Fiat technology that it hopes will prove its salvation. It requires no prophetic ouija board to proclaim that Ford will be successful in the coming years. It is important, however, to remember that Ford's relative success through the recent economic turmoil compared with its domestic competitors is mostly the result of having hit fiscal rock bottom before General Motors and, therefore, having started the rebuilding process earlier. General Motors has all the tools - exciting new products in the pipeline, a healthy bank balance - for an equally impressive turnaround should they not become mired in the recent internecine squabbling that has generated headlines as of late.

And at least one (and possibly all four, with Jaguar, Land Rover and Aston Martin being the others) former Ford unit - Volvo - will prosper under its new owners. Volvo may have benefited from Ford's buying power but it did not flourish under Ford's management style. New owners Geely, however, are more likely to defer to Volvo's expertise. With what one assumes is a healthy financial balance sheet behind it, this is Volvo's best opportunity in some time to make inroads against its European competition.

Of course, that other Swedish brand, Saab, will flounder. Even if, by some miracle, someone buys the ailing car maker, its production, brand awareness and distribution network have slumped to such a degree that the end is nigh. Resurrection would require a financial commitment in the order of that behind GM's 10-year rejuvenation of Cadillac and there's just not that much money floating around the car industry right now.

Nor, will it be the only company to disappear or at least radically downsize. The story of the next decade will be the global overcapacity in car manufacturing. North America, for once, has led the charge - even if it was unwillingly - towards rationalisation. European manufacturers have, so far, resisted all such efforts though, as was the case five years ago when the fortunes of Detroit's Big Three began seriously unravelling, the cutbacks are becoming more dramatic.

Opel will be greatly downsized, losing approximately one-fifth of its workforce in the coming years. France is grossly oversupplied with domestic brands and products. Volkswagen, at a quick glance, seems immune from the economic turmoil, though its Spanish Seat brand is seriously lagging. Fiat is still far away from the six million annual sales the CEO sees as necessary for it to remain a global player. The bottom line is that we can expect a shakeup in Europe, similar if not in scope then at least in intention, as the recent gutting of the American auto industry.

Nor are the once-impregnable Japanese manufacturers immune. Volkswagen recently bought 19 per cent of Suzuki in a tie-up that could be a harbinger of more consolidation in the Japanese car industry. Honda's conservatism, so assiduously criticised when the good times were rolling, has served it in good stead these last tumultuous months. Toyota, on the other hand, has suffered greatly, with ambition and hubris normally attributed to Detroit car makers the major source of its ills. Of course, chasing the number one spot on the global production chart and all the attendant quality control issues that ensued didn't help matters. Nor did focusing on large cars and trucks for the failing American market. Look for Honda and Nissan to emerge from the doldrums well before Toyota.

Lastly, the Chinese invasion everyone in the car industry fears is imminent may be longer than expected. Chinese automakers still lag far behind North American, Japanese and European car makers in areas of safety, performance and refinement. Much has been made, for instance, of BYD's "expertise" in electric and hybrid cars. But, according to BusinessWeek magazine, its batteries and electric motors are still assembled by hand. It also delivered only 100 of the 4,000 plug-in hybrids it promised to manufacture this year. And what does it say about Beijing Automotive Industry Holding Corp (BAIC) that acquiring the tooling for Saab's previous generation 9-5 - already the oldest and least technologically-advanced car in its segment - is actually a step forward. Chinese marques will eventually start exporting to established markets in significant numbers, but it might well be later rather than sooner.

Or so says my crystal ball. motoring@thenational.ae