‘The Economist january 19th 2019 ‘The global car industry The big freeze Carmakers scramble to prepare for a chilly future as sates in China shrink. ‘erRor’s MoTOR show, which opened on January 1th, is taking place in the winter for the last time before the event ‘moves to the summer months in 2020. ES- ‘aping an icy chillisalsoatthe forefront of the minds of the carmakers gathered there [Arash of recent announcements about r structurings, a new alliance between Ford and Volkswagen (vw) and the likelihood of ‘more tocomeareaimedatavoidingpainin an industry heading for 2 downturn and preparing for longer-term upheavals. The Fisk is that none of them proves to have been bigorradical enough. ‘Cutting costs is a priority for many firmsas carsales look likey to fall, and the need toinvestin new technology becomes more urgent. Last week Ford unveiled the European end of aglobal effort to cut costs by $uabma year, which may see24,000 of ts 200,000 Workers laid. off. Jaguar Land Rover (ta), owned by Tata Group of india, alsosaidthatitwil lay off 4,500employees aspartofa plan to save £2.5bn ($3.2bn).On January sth Ford and Volkswagen gave de- tails of a cost-sharing alliance that jim Hackett, Ford's boss, calls the "next indus tny-transforming event”. The nextday poor preliminary results sent Ford's shares sid- ‘ng, emphasising the plan's urgency: ‘All carmakers are worried that a global slowdown could turn intoa routas cyclical declines and a trade war bite at the same time. Their foremost concern is that years fof bumper growth in the most profitable ‘markets is comingtoan end. Both America and Europe ae still on a high in terms of sales (see chart) but China, a vital source of profits for most firms, is causing a severe headache. The world’s largest car market shrank forthe first time in over 20 years in 2018. Sales fell by 2.8% to 28.1m vehicles and slid by 33% in December, giving a taste ‘of whatmay be in store this year “rade troubles and other problems could add to the cyclical pain. Donald “Trump has foreign carmakers in his sights ‘Toredress whatheregardsasan iniquitous trade deficit with Europe, he has threat- ‘ened import tariffs ontscars.UBs,a bank, reckons that the worst case—tarifis of 25%--would. see the American market Shrink by 12% next year. Europe faces not only the disruption of Brexit but decining sales of diesel-powered vehicles. ven if coping with these problems ‘were not enough, carmakers also need to ‘make big investments in electric cars, au- = Decelerating Pasenger casas. Rw se Tones Ch CE ain ico igx es tonomous vehicles and “mobility” ser- vices, suchas cat-sharing and ride-halling “Take-up ofthe latter could cause ca sales to:plummet. Bain & Co, a consulting firm, says that Americas driving-age population ‘is not growing trend mirrored. therest ‘of the world), while a generational switch tomoblity services, such as obotaxis, will hitsales further. The firm seckons thacthe ‘American market, currently 17m cars a ‘year, could shrinktosomby 2025, ven before the latest round of an- nouneements, carmakers had been down Sizing and leaving loss-making countries ‘or market segments, They have then been feassigning investments to where they ‘make most difference. GM announced Dig lay-offs and factory closures last year and in 2017 sold Opel, its European arm, to France'spsa, for example. The French frm, toss-making until Carlos Tavares took over in 2014 has stopped making ess profitable ‘models, Also in 2077, FiatChryslerAutomo- biles (rea’ chairman, John Elkann, sits on the board of The Economist's parent com- pany) likewise stopped makingsaloon cars In America to concentrate on higher-mar- gin suvs. Ford is said to be considering an ‘exit from South America. ‘Cutting costs and boosting profits to shore up balance-sheets is one way of in~ furing against a turbulent future. Another is to share costs. The tie-up between Ford and vwisthemost prominentrecentexam= ple ofthe web ofalliances that characterise {he carindustey. Some alliances areexplic- {tly aimed at preparing forthe furure. In 2or?, for example, Toyota teamed up with Mazda and Denso, a Japanese partsmaker, todevelop evs. ‘Yetord and yw disappointed manyiin= vestors who hadhoped thei alliance might be closer. There had been rumours of m= sminent collaboration on electric vehicles, autonomy and mobility services, but the two firmsin fact said they would make only conventional yans and pick-ups together. ‘They have firmly ruled out equity ties that could deepen their relationship. Pressure for alliances or fullimengers among firms is unlikely to go away. Con- solidation may be the only way tobring the Seale of cost savings that the industry ‘needs in order to take on American tech ants, such as Google, that have transport in their sights, Both Sergio Marchionne, c's boss until he died unexpectedly last year, and Carlos Ghosn, who built the Re~ paultNissan-Mitsubishi alliance, — the ‘world’s biggestearmaker (who is detained inaJapanese prison on charges of financial ‘nisconduet), have in the past called for ‘more consolidation. Sanford C. Bernstein, “anequity esearch firm says that2019, 100, ‘willbea year of “endless mua rumours” as, ‘demand wobbles and costssoa "Yet big alliances, nt tomention cross border transactions, ate fiendishly hardto, handle: Mr Ghosn’s detention has pio rious doubt the future ofthe world’s big- fgesttie-up. Indeed, many believe the care ies against him have been trumped up by Nissan as a way toblock his plans fora fll jetger. Mr Matchionne'seath Ras tobbed the industry of abig personality who wants fed consolidation and who had proved that {big transatlantic deal could work, ‘Most car bosses who remain are not the sort of imposing characters who could nis tiate and see through a mega-merger. The only candidateisprobably MrTavates, who hhas turned afound bot rsa and Opel in (quicktime. But his ands re full complet- ing that deal. Asthecold bites, theindustry may truggletocope.