Carlos Ghosn Sees No European Growth For Years. There Will Be Even Less After That

"real US unemployment hovers around 16%" I find it kind of comical that some people have stumbled upon the U-6 unemployment rate, only to assume that it is the only "real" figure, while the other five (including the U-3, which is the actual "real" rate) are not. Statistical abuse is worse than statistical ignorance, because the former is based upon feigned knowledge. It is preferable to learn more about such things prior to forming judgments about them, lest your judgments prove to be flawed. The reality is that even in a good year, the vast majority of the population does not participate in the new car market. The vast majority of cars that are sold in a given year are used, and of course, there are many years when the typical household doesn't participate in either the new or used vehicle market. The car industry does not require even a substantial minority of the population to buy a new car each year. If that was what was needed, then the whole thing would have collapsed a long time ago. Renault's problem as a brand is that it can't compete in the European company car market, which is critical for any automaker that wants to succeed in Europe. It lacks the prestige vehicles that are needed to provide a halo to the lower level cars and to secure corporate fleet deals. As a consequence, its best hope is to try to use lower level products (including Dacia) to niche the part of the mainstream market that are outside of the focus of the company car giants (BMW, Mercedes, VAG). It is worth noting that every automaker in Europe that is struggling there has one thing in common: the lack of a compelling premium brand. To lock in the middle of the car buying chain in Europe requires strong branding in the tier above it. The danger to the likes of Renault is that the Koreans end up beating them to it.

@ Pch101: "The car industry does not require even a substantial minority of the population to buy a new car each year. If that was what was needed, then the whole thing would have collapsed a long time ago." In other words: The auto industry is recession-proof, as long as it finds enough rich suckers who buy the overpriced machines. I hope you are making these comments strictly on an amateur basis. Woe are the rich suckers who pay for that advice. The above may be true in an expanding market like China, or India. In the saturated first world markets, just the opposite is true. The auto industry is the epitome of a cyclical industry. It rises and falls with the economy. In some cases, it can make an economy rise or fall. Auto sales, such as those reported tomorrow, are used as indicators for the health of the economy. We pay more for "transportation" (and in America, that's mostly cars) than for food. The used car buyer, the taxi driver, even the worker that bikes to a factory making plastic parts, they all are part of the automotive ecosystem. It is more fragile than wetlands. If the used car buyer, who allegedly has no influence, can't afford a used car anymore, prices drop, residuals drop, financing costs go up, new car sales head down. So yes, when people suddenly have less money, car sales go down. Car sales especially go down if there are fewer people to buy them. Car sales go down a lot if there are fewer people who also have less money. Only a charlatan will say this is not true. Which is not to say that there won't be people willing to listen and give money to the charlatan. People who are told they don't have long to live tend to do the most silly things. So, premium cars are the secret to success? They were. A look at the graph above will tell you that in a few years the currently surprisingly resilient premium car market will start to contract, at least in Germany and most of Europe, and in about 10 years, premium sales will lay in ruins. Premium car buyers are quite old, usually over 50, buyers of the bigger Mercedes are around 60. Soon, they will retire. No customers, no sale. This is why smart OEMs around the world are no longer betting their future on premium cars. They are doing just the opposite. Premium bets had to be placed 20 years or more ago to be successful today. Now OEMs work on low-cost cars, some even on ultra low-cost cars for a time when the developed markets won't be rich anymore, and when developing markets need low cost transportation in huge masses. Premium makers like BMW even invest into car sharing companies as a hedge against people no longer buying cars. The trick is to make money with low cost cars, and the Renault which you despise so much happens to be the Houdini of this black art. When you build a new car, you need to plan for more than ten years out. When you start a factory, you must plan for many decades. When you start a brand, you better bring enough time and money to last half a century. For that, you better have your macroeconomics down, and you better stop listening to the nanoeconomic nonsense, dished-out by self-styled experts which this industry attracts.

@Pch101 PCH : "It is worth noting that every automaker in Europe that is struggling there has one thing in common: the lack of a compelling premium brand." Hyundai-Kia are doing well in Europe but do not have a premium brand, compelling or otherwise. So having a premium brand is not necessary for success in the European market. I agree with Bertel, that the state of the economy in saturated markets has a direct effect on the auto industry. It may not always be immediate, like the UK had a surprisingly good 2012, but it will catch up and as such I expect the UK market to join the Euro decline in 2013. I also agree that cheaper cars, like the Dacia range, will be a significant part of future growth as people look to reduce expenses.

@Pch101 Hahahaha Bertel, tell it like it is! Nothing like a real pro to set the record straight. In Brazil, Pch101, the makers did exactly like you said for many years. At its height they could find 1 million maybe a million and a half rich suckers who would pay the equivalent of 30 000 dollars for a VW Beetle top of the line. Or mre than 50 000 for an old Chevy Opala (based on the Opel Reckford(sp??)). They lived, and they propospered. Parking was easy and the traffic flowed. Times were good. Brazil was not even in the top10 world markets. Then along came Fiat, betting that the future was in small cars. Extending credit to the working stiff, forcing others to lower pricing, even adding some new fandangled tech (transversal engines, FWD, ethanol cars, crumpple zones). Of course the enthusiasts hated it. Oh the cheapness of the cars! How small! A real car was a RWD VW Brasilia or Ford Corcel! But the market grew. Now about 4,000,000 cars find a home each year. I can't calculate how cheaper parts, mechanics and just the availability of replacement items have become. In the past, an old car (+5 years) was a hassle partly due to the difficulties in maintenance. That's a thing of the past (except of course in the case of the premium brands that cater to the super rich. Then you're stuck with the dealership and if your car is dropped from the line, well good luck in the upkeep of your car). I'm old enough to remember that in the 80s and 90s, many expected the likes of BMW to fold. Lux makers fell left and right to run of the mill makers (Alfa to Fiat, Jag to Ford etc. and ad nauseaum). The truth is that the mainstream makers have the volume and power to last through the hard times. A company cannot depend on corporate fleet sales forever. In Brazil, Pc101, I've seen this picture before. In the 80s, at the height of the debt crisis, market leaders were such things as Chevy Monza and Ford Escort. Sold to higher middle class people and up, it's exactly like in Europe today. Heck, 10 years ago, super expensive things like Corolla, Civic, Chevy Vectra would make it into the top 10 in sales. Now they can hardly get into the top 20. You know why? Because real middle class and lower middle class is now buying cars. Ford can't keep up with depend for Kas (while new Fiesta languishes at the dealers), Fiat sells every Palio, Uno, Siena they can put together (while Punto needs constant promotions to move). If you go to a BMW dealer, I'm pretty sure you can find a brand new Series 7. MOY 2011. Like Bertel said, Renault is fast adpating to these times. The Dacia is an unbridled success story. I know how hard Fiat has studies the car. Engineers from Fiat I talk to are amazed by the creative, out-of-the-box thinking that went into making these Dacia cars possible. What's more, they're impressed with the quality (I went out and bought one of them after I heard that story!). Renault-Nissan is set to become one of the top dogs in the world soon. Renault is doubling the capacity of their factory in Brazil. Nissan is building their very own. They own Lada, they're entering and selling (Duster) in India. Meanwhile, BMW is setting up shop in Brazil. How soon before one of them, a stripped-down, cheapened-down, hollowed-out BMWs make it to America? I can't blame PCh101. To live in America is to see the world in a distorted lense. Things like Lexus, Acura, Infiniti, Eqqus are play things to sucker rich Americans. They're not needed in the rest of the world. In Brazil, and much of the rest of the world, a Corolla is like a Buick, while a Fusion is a BMW. A BMW is a Bentley and a Rolls is something unimaginable. The future belong to VW, GM, Toyota, Renault-Nissan, Hyundai-Kia. Maybe Honda. Maybe Fiat-Chrysler. Surely not BMW, Mercedes, Jag. Good day.

@Pch101 "In other words: The auto industry is recession-proof, as long as it finds enough rich suckers who buy the overpriced machines" No, I never said that. On the contrary, the automotive industry is cyclical and is profoundly impacted by economic cycles. What I did say was that most households don't participate in the car market in a given year, and no automaker operates on the assumption that they do. That is simply a statistical fact -- there is no way that anyone can ever expect to sell that many cars, so they must build and price, accordingly. What all of you are missing is that Renault would be in trouble in Europe even without a recession. They are poorly positioned to take on the Germans, regardless of the economic situation in Europe. They resemble GM in North America before the bankruptcy -- poorly branded vehicles, generally not well regarded, that lack pricing power. Economic conditions make this worse, but they didn't cause the underlying problem.

@Marcelo de Vasconcellos Wow, Marcelo, that could have been an article in itself!