The European automotive industry could see "forced" consolidation should the current recession deepen and drag on, GM Europe's president warned Sunday. "Whenever we talk about consolidation we have the feeling that something has to happen," Carl-Peter Foster told reporters on the sidelines of the Detroit auto show. "We could well see some surprises," Foster said.
"It depends tremendously on how long this recession lasts because the longer it lasts the more companies will come into real distress and sooner or later there will be a forced consolidation." GM expects European auto sales to fall to 18 to 19 million vehicles in 2009 from 23 to 24 million in 2008, Foster said. "We believe we may have reached a bottom (but) we don't know," he said.
The Detroit-based automaker plans to cut its European production by a few tens of thousands of vehicles less than its current demand forecast and expects to reach a deal with its German union next week. Suppliers have already begun to feel the pinch after automakers slashed production in the wake of a sharp drop off in sales in the second half of last year.
Support will be needed from both automakers and governments to keep the industry running, Foster said. "It's definitely not business as usual because most suppliers have been or will come into a difficult situation and very soon we will need a debate generally in Europe on how we support industry," Foster said. The auto industry will likely be targeted in a 100 billion euro stimulus plan currently being discussed in Germany, Foster said, but automakers will also have to step in.
"Directly or indirectly we always consider supporting key suppliers as an industry because we can't live without our suppliers, Foster told reporters. Each supplier will be dealt with in a case-by-case basis and typically, the manufacturer with the highest share in the business "takes the lead and negotiates a solution."
"The solution could be you take the tools out put it somewhere else and close the supplier or we fund the supplier," Foster said. It is possible that GM's Saab brand could be part of the industry-wide consolidation, Foster said, adding that GM has been approached by one automaker interested in buying the Swedish mark. "We were talking to one auto company that has volunteered, was interested, by the sale," Foster said.
But before any deal can be reached, GM must first complete negotiations with the Swedish government on proposed credit guarantees. An agreement of some kind must be reached before a March 31 deadline by which GM must present the US government its global sustainability plan in exchange for billions in loans.
"We don't need a detailed, signed loan agreement. What we need a goodterm sheet and we believe it's doable," Foster said. The key question for Saab's survival and attractiveness for potential sale is whether it can generate sufficient cash flow to support product development, Foster said.
"If we have an autonomous or quasi-autonomous company well funded the pressure to sell it is not that evident," Foster said, adding that "all options are on the table." GM bought half of Saab in 1989 and the rest of the company a decade later and has essentially been losing money ever since. About 75 percent of the Swedish brand's sales are in Europe.