Thursday, March 7, 2019


Whilst companies like Aston Martin basked in the glow of the launch of its machina stupenda, the AM-RB-003, and Bugatti revealed its La Voiture Noire priced at a cool USD$27 million, focus on the car industry as whole turned to matters financial after all the spotlights had been turned off at the end of press day.

Analysts looking deeper, under the glossy paint jobs and dazzling technical detail at the financial strength of some of the players, revealed a couple of major surprises. This simply heightens fears held by the big players like Ford, Fiat Chrysler Automobiles, General Motors, VWAG and Jaguar Land Rover.

Investors and analysts are concerned that the approaching trend of sales declines for carmakers will have more serious effects on the future of some.

Already the Chinese market is slowing dramatically, sales growth is flatlining.

Global consulting group, Alix Partners, highlighted debt issues facing Jaguar Land Rover. Although just a small number of carmakers and component makers have debt trading at levels which suggest potential risks, it is feared that these issues will become more widespread.

Jaguar Land Rover has suffered one of the biggest sales declines, of any manufacturer, in China. So much so that the company says it will accelerate plans to generate GBP£2.5 billion (AUD$4.67 billion) in additional profit, lowered costs and cashflow improvements this year. This comes on top of layoffs totaling 4500, from its workforce.

Jaguar Land Rover has a BIG problem. The Jaguar unit is knee-deep in unsold passenger cars worldwide, as its SUV range takes over the spotlight as the new favourites among Jaguar enthusiasts. Facing huge investments in facelifting its entire car range, this slowdown in its passenger car sales could not come at a worse time.

British car magazine, Autocar, recently featured a story saying that JLR was even considering phasing out its XE and XF models, replacing them with ONE model which may cover two (size) sectors.

Ford is also under the spotlight, as investors punished it for poor bond yields.

Although they rallied slightly this year, investors and analysts believe that Ford’s huge investment in new technologies puts it at risk of maintaining its investment-grade ratings.

Auto analysts have been forecasting, since late last year, that 2019 will see a slow, but then accelerating decline in car sales, and the only way to fix this is massive marketing spends – a big challenge when companies are hamstrung by difficult cashflow conditions.

Even VWAG is turning the magnifying glass on some of its jewels, such as Bentley. A German analyst with close ties to the company has said that VWAG has told Bentley it must improve sales and profit contributions to the Group, or there will be major cuts to its model lineup.

Just as Ford in the USA says it will only offer two passenger car lines from this year (Focus and Mustang), there have been suggestions that VWAG could take the axe to most of the Bentley lineup, with either its range-leading sedan, the Mulsanne, or the Flying Spur disappearing!

That could lead to Bentley reducing the range to just the Continental coupe and convertible, and its hugely popular Bentayga SUV.

At Geneva, one auto writer said he believed VWAG was even looking at a new Bentley SUV which would be smaller than the Bentayga, perhaps based on the VW Tiguan – in an effort to bolster Bentley sales with the vehicle type currently carmakers’ biggest sellers – SUVs.

This would be a huge embarrassment for the British carmaker, but even rumours like this suggest the fear of major sales declines is scaring car company Boards around the world.

In Japan, Subaru’s massive recall for faulty brake switches, highlights the costs of correcting such failures, which often lead to heavier borrowings at higher interest rates.

There has been talk in Japan for some time that Subaru could be absorbed by Toyota.

The two companies already have close ties, and with its joint development of the Toyota 86/Subaru BRZ sport coupes proving popular, it would make sense for the companies to share technology and split up in differing market segments.

Investors are now showing additional caution at buying car company bonds which mature in decades, when the cyclical and structural changes the industry will undergo with a switch to electric and autonomous vehicles, plus the rapid growth in ride-sharing services, threatening the conventional business models which have survived for decades.

This year may well be a tipping point for an industry which is about as easy to turn around as a battleship.

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