The current crisis engulfing the auto industry will soon lead some automakers to consolidate, Nissan’s Chief Executive Carlos Ghosn said Wednesday in his opening address to the Los Angeles auto show.
Ghosn, who also told reporters that Nissan is not pursuing any new alliances, said the weakening global auto market now facing the industry will knock out some competitors. He pointed to the U.S. financial industry, which has seen key players recently disappear.
“We’re still stuck in a situation where credit is not flowing normally, and the recession that began in the United States is not only deepening but spreading across the globe,” Ghosn said. “It’s fair to say that no one, no one had predicted how the global economy would be so volatile in 2008.”
With its emphasis on future automotive technologies, the Los Angeles show is often an optimistic and forward-looking event, but there will be little to celebrate this year with the automotive industry in a full-blown crisis, struggling with low sales, massive financial losses and talk of bankruptcies.
“I think this might be the most interesting auto show I’ll ever attend, not so much because of the cars that will be there but because of these troubled times for the industry,” said Jack Nerad, market analyst at automotive information company Kelley Blue Book. ”This is really a pivotal time.”
The timing of the show could hardly be more pivotal. Ghosn made his remarks as the chief executives of General Motors, Ford and Chrysler LLC appeared on Capitol Hill to make their case to the House Financial Services Committee for $25 billion in loans to stay in business.
Advocates say the rescue plan is essential to save a crucial sector of the economy, but many lawmakers oppose the bailout, saying the automakers should be forced to pay the price for their business mistakes.
In most need of that cash is General Motors, the nation’s biggest automaker. Its sales slumped 45 percent in October, and it warned that it’s going through cash at a rate of $2 billion a month and without help from the government will run out of money in early 2009. GM and Chrysler have scaled back their involvement in the Los Angeles show and will hold no news conferences.
Aside from the financial considerations, the Big Three’s executives are likely to keep their heads down in Los Angeles, given the ongoing debate in the Senate and the state of crisis facing the industry, said Rebecca Lindland, an automotive analyst with consultancy IHS Global Insight.
“It’s really hard to throw a party when you’re dying, and of course it’s not really appropriate” said Lindland. “These companies are in the throes of throes of chemotherapy right now, so they need to walk a fine line between being excited about new products and respecting the very difficult circumstances they find themselves in.”
GM, for example, has said it won’t send its colorful Vice Chairman Bob Lutz to introduce the sporty Cadillac CTS coupe in Los Angeles. The CTS is a “gorgeous car,” but it’s a high-end vehicle that sends the wrong message at a time when GM is asking the government for billions of dollars, said Lindland.
“The perception of Cadillac is of excess; it’s a high-profile, low volume vehicle and not the type of vehicle you want to be seen flaunting right now,” she said. “And you can’t take a chance that the media will catch Bob Lutz swilling Champagne or puffing on a cigar — it’s a PR nightmare waiting to happen.”
Seen as the second-most important U.S. auto show after the Detroit gathering in early January, the Los Angeles show in recent years has fostered a reputation as a venue where automakers can show off their latest fuel-efficient, “green” vehicles and high-end luxury cars, both of which are enormously popular in California.
This year's show will feature hybrid versions of the Ford Fusion, the Mercury Milan and the Lexus RX hybrid sport utility vehicle. Chrysler will offer a first look at three electric vehicles it’s developing, Mitsubishi will show a small electric car called the iMiEV and BMW plans to show the Mini E — an electric version of the two-door Mini Cooper that goes into testing phase at the end of the year.
On the luxury and performance side, Ford will show off its updated 2010 Mustang muscle car, Nissan's Infiniti luxury brand will launch its G37 convertible, while Nissan shows off its new Z sports car and the U.S. version of its boxy Cube — an inexpensive small car designed to compete with models like the Honda Element and Scion xB.
One of the most important cars on show in Los Angles will be the Honda Insight — a reworked version of Honda’s original gas-electric hybrid that will be a direct competitor to Toyota’s highly popular Prius.
But Honda’s Insight comes along at a time of falling gas prices, which puts its future in some question, notes Kelley Blue Book’s Nerad.
“I think that within the halls of Toyota there are significant concerns about how big a premium you can charge for a hybrid and how many you can sell,” he said. “There are cheaper ways to save gas. It depends on how much fuel economy you want — what is the consumer looking for? That is a moving target, and our research shows interest in hybrids is directly tied to cost of gas. It’s a pretty direct correlation.”
“So the Insight puts more pressure on the Prius, and all companies that make hybrids are looking at the fact that demand might be limited,” he continued. “If fuel prices stay at current levels the overall market for hybrids will be smaller than if we had $4 or $5 gallon gas, so it’s going to take longer to pay back the premium you pay for buying one of these vehicles.”