European manufacturers need a revolution - but Britain has made a start.
Europe's car makers are in trouble. In a savage recession surpassing the impact of the early 1970s oil shock, sales have plummeted by nearly 18% in the first seven months of this year with 1.5 million fewer cars sold than in the same period of 1992. By the end of 1994, west European car production is expected to have fallen by two million vehicles or 15% to 11.4 million from 13.4 million in 1992 according to DRI, the motor industry analysts. The slide is so precipitous that a manufacturer the size of Fiat or Renault would have to shut down to bring the market into anything approaching equilibrium.
Major markets like Germany and Italy have been hit by massive falls in sales. Compared with last year, the German market in the first seven months of the year was down almost a fifth after the heady post-reunification boom. Conditions in Italy are worse, with a 24% sales slump. The French market has fallen 17% and Spain's by a spectacular 28%.
The slide has left manufacturers floundering in a sea of red ink. Europe, once the cornerstone of Ford's profitability, has now cost the corporation $2 billion in losses over the last two years. Poor results are among the factors that have impelled Volvo and Renault to merge after a protracted on-off courtship. Mighty Volkswagen, which has dominated the European car sales league for eight years, lost DM 1.2 billion in the first quarter of 1993. Nor is there any sign of a turnaround at the Wolfsburg-based giant. After the discovery that its Seat subsidiary had plunged into loss, Volkwagen's embattled new chief, Ferdinand Piech, has had to take direct control of the Spanish subsidiary's affairs. VW also halted at the last minute a plan to invest £650 million into a Czech subsidiary, Skoda. A rattled Piech is even accusing his own senior managers of plotting against his efforts to get the company back into the black.
The smooth upward progression of the German motor industry, once the envy of Europe, has come to a shuddering halt. VW's fellow nationals, BMW and Daimler-Benz, are both feeling the squeeze. Daimler-Benz is slashing 40,000 jobs and BMW is on a cost-cutting drive after a 9% fall in sales in the first half of 1993 hit profits. Predictions that the European motor industry will follow the steel and shipbuilding industries into decline unless it achieves an 'industrial revolution' to restore its competitiveness to meet the Japanese challenge have done little to soothe ragged nerves.
The 1980s saw sales rise from 10.17 million in 1984 to 13.47 million in 1989 and a record 13.5 million in 1992. While no one in the industry expected this boom to continue indefinitely, the abruptness of the decline has heightened the sense of shock. There are close parallels with America where recession and Japanese imports and production hit the Detroit car makers. But there is some comfort to be drawn from the American experience. The Japanese are not invincible. Detroit is hitting back. Ford, Chrysler and GM are out of the red and making money once more. The Japanese are handicapped by the strength of the yen which is forcing them to increase prices at a faster rate than American rivals. The Americans have also recognised the need to embrace revolution in a bid to get costs down. The same process is under way in Europe especially in Germany. The revelation that German auto industry wage costs were two-thirds higher than the average for the rest of Europe and that each worker puts in a third less hours per year than the Japanese, has shed a different light on the German industrial miracle.
The scale of their cost handicap seems to have surprised the Germans themselves. Now workers' acceptance of labour agreements like the one covering the manufacture of Opel's new range of car diesel engines is being sought, together with other productivity measures. It is hoped that absenteeism will be lowered to 'internationally competitive levels'.
Given its past history, it is ironic that Britain's motor industry can claim to be as far down the road of 'revolutionary' change as any in Europe. Rover is one of the few car makers operating profitably. Vauxhall's American owners are full of praise for the efficiency of its manufacturing and Nissan's Sunderland plant is widely regarded as a world-beater.
Helped by this year's healthy domestic sales, the British industry, with the exception of Ford, has so far largely avoided the trauma afflicting its Continental rivals. But it is feeling some impact: Nissan has scaled down output expansion plans and halved production at Sunderland. Ford and Vauxhall are also cutting output.
It will be several years before the European market comes close to 1992's record sales of 13.5 million. DRI's forecasts suggest it will be 1996 before the sales even get back over 13 million. But DRI has good news for Britain with its prediction that the presence of the Japanese car makers will lift the industry from fifth to third place in the European production league ahead of Spain and Italy by 1998.
The collapse of the European market has revived criticism of the Japanese and this seems certain to intensify. With VW's senior managers predicting that Europe will have excess car production capacity of 10 million units throughout the 1990s, more crisis driven mergers like the Renault-Volvo deal seem inevitable.
One consolation is that consumers are going to find the market awash in cheaper, better built cars. On the other hand, no one should expect what is one of Europe's biggest industries to contribute to solving the jobs crisis. The industry that was the powerhouse of the 1980s will be playing a more muted role for the rest of the decade.