The Swedish car industry could collapse before customers return in numbers needed for revival.
As the global Great Recession drags on, with European and North American auto markets languishing, the prospects for the Swedish car industry are challenging.
The industry could collapse before customers return in numbers sufficient for revival.
Swedish new car sales fell 17% in 2008, with a 35% downturn in the final quarter. The forecast for 2009 is for a further a reduction of 27% – about the same decline as in the U.S. market. According to the national Institute of Economic Research, unemployment is expected to rise from 6.1% to 7.9%.
As the Swedish government is no doubt by now painfully aware, about 700 companies in auto related areas support a workforce of close to 140,000 taxpaying job holders.
About 72,000 are employed in vehicle production and the component supply chain. Truck makers Volvo and Scania remain relatively strong in European commercial vehicle production, although they too are wracking up big losses in the Great Recession.
The Swedish government presented a life support program to help the auto industry last December. This included loan guarantees for European Investment Bank financing worth 20 billion Krona (€2 billion), rescue loans worth 5 billion Krona (€0.54 billion) and the establishment of a research company for investments in “clean technology” of 3 billion Krona (€0.32 billion). It does not look like it was big enough.
The economic crisis has hit Sweden hard. Gross domestic product has fallen more than in of the other Organization of Economic Cooperation and Development (OECD) countries, the United States and the Eurozone. GDP is expected to drop 5.4% this year. Manufacturing output is likely to decline by a quarter in 2009-2010, with as many as one in five – or around 135,000 – jobs lost.
Koenigsegg Group AB, the small Swedish sports car maker for the ultra rich, is attempting to collaborate with Beijing Automotive Industry Holdings Company Ltd and buy Saab from General Motors Company. BAIC, which the Chinese Government controls, will become a minority owner in if a deal is finalized by the end of the year.
A big hurdle was cleared last week when the European Investment Bank approved a $400 million loan. Needed loan guarantees from the Swedish government are still pending, which has been resisting directly helping bankrupt Saab.
At the core of Saab’s survival is whether Saab it can become viable under the so far undisclosed business plan developed by Koenigsegg. The company has been slowly declining for decades. It is true that BAIC would give Saab access to China, now the world’s largest auto market, but Chinese industrial policy favors local manufacturing.
Swedish imports will be heavily taxed and face other non-tariff barriers. We will have to wait and see if this is a real expanded sales opportunity for Saab – and whether it can hang on long enough for it to materialize. The Chinese could just want access to the technology and new designs.
Over at loss making Volvo, the only apparent serious bidder for the Ford Motor company subsidiary is the Chinese Geely Holding Group, which has been trying to purchase it from Ford for almost a year now. The sticking point here is intellectual property rights. Since all Volvos — now and in the near future — are developed from Ford’s platforms, this is not a trivial matter.
The Chinese have in the past demonstrated a complete disregard for patents and copyrights. Piracy is rampant. Moreover, Ford’s own business partners in existing Chinese joint ventures have been caught knocking off parts for illegal sale. Outlook? Murky…