Gavin Green column
It's Darwin's theory of evolution turned automotive: survival of the fittest... and few European-based manufacturers now make a profit
Saturday 25 January 1997
Last week's announcement of 1,300 job losses at Ford in Halewood and this week's job gains at Nissan in Sunderland underline the point. Ford will shed workers on Merseyside, because other, newer factories can make cars for less money. Nissan in Sunderland is gaining workers because it can make cars for Europe more cheaply than importing them from Japan. New factories, such as Nissan's, put extra pressure on the older, less efficient ones such as Halewood. Equally, Ford is planning new factories in Eastern Europe. These, in turn, may well do to Sunderland what the Geordies have just done to Merseyside. It's Darwin's theory of evolution turned automotive: the survival of the fittest.
Cost-cutting is the overwhelming priority because European car companies are still too inefficient. Few European-based car makers now make a profit, and those that do, make their money mostly from extracurricular activities, such as finance, rather than from selling cars. Europe has too many car factories making too many cars for too few people. And, as more and more makers turn to Eastern Europe to site new factories (because the costs are lower, and the market there is growing faster), the pressure grows on the costlier, older Western factories. Most of the Eastern European production will be exported to the West. The upshot is certain to be major factory closures in the West or major shake-ups - as has happened at Halewood.
In the past fortnight I've dined with the president of Ford, Australian Jac Nasser (in a party of hacks at the Detroit Motor Show) and with the internal finance director of Renault, Francis Stahl (at the presentation of the European Car of the Year award to the Renault Scenic). Both of them mirrored each other's views on the likely future of European car production. They agreed that there would be plant closures or major restructurings and that the countries most likely to lose would be Germany, France and Benelux, where costs are highest; that the market was now a global one and that Japan and America were cheaper countries in which to build and develop cars than Europe; and that, in Europe, General Motors is now the lowest-cost manufacturer, but that all manufacturers are improving fast. Volkswagen is one of the fastest improvers, not least because it is strong in Eastern Europe.
"The Vauxhall Vectra is probably the most profitable big car built in Europe," said Francis Stahl. "It may not be the best to drive or to own - but it makes its maker the most money, and that's ultimately what the business is about." Stahl also estimates that the new Volkswagen Polo - developed and built after VW began a savage series of cuts in the early Nineties - cost about 10 per cent less to develop and manufacture than the latest Renault Clio. The next Clio, due in 1998, must be at least as good. "We have to cut costs, and then cut them again. The level of competition is now so intense - from other European, Japanese and American makers - that to do otherwise is to commit suicide."
Stahl cites the American maker Chrysler as a role model. "Chrysler sells low-cost cars that look good and, in terms of engineering, do a perfectly adequate job, even if they're not on the cutting edge. They please the buyers because of their low prices and their attractive style. And, although they're not great cars, they're good enough. People don't complain."
European cars, he hints, are in fact over-engineered. "We need to do a good - and in some cases better - job of the important things: fuel economy, reliability, longevity, comfort, safety. But in other areas, such as high performance and miraculously tidy panel gaps, we are spending money needlessly both in engineering development and manufacture. We have to target those areas that actually matter to the buyers and, in effect, reduce quality in those areas that don't."
In the past, European cars have probably been the most intensely engineered in the world. But in today's market, our mass makers just can't afford that extravagance. More and more Japanese makers are setting up shop here (witness Nissan's expansion in Sunderland) importing Japanese-style work practices to make Japanese-style cars (key ingredients: good value, reliability, ability to do the job). The Koreans are also coming.
The old way of allowing engineers to indulge their whims to please the car cognoscenti who appreciate hidden technical gems is going fast. People want pretty and stylish cars - for a car's look is important to everybody. In every other way, they mostly just want cars that "do the job". And that's what Europe, learning from the Japanese and Americans, is about to deliver.
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