Falling demand and over capacity on forecourts will make 2009 a tough year for the motor industry but this could lead to good deals for buyers writes Michael McAleer, Motoring Editor
THE NEW Year heralds one of the toughest times in the history of the Irish car industry, currently structured to cater for a market of between 160,000 and 180,000 new cars.
New car registrations are likely to end the year at 151,500 sales. That's down 18 per cent on last year, bad news in a year that marked the centenary of General Motors and the Ford Model-T. However, it's nothing compared to next year's expected fall.
As terms like "soft landing" were being bandied about by politicians and economists, estimates put sales at about 120,000 new registrations. That meant dealers cutting back orders and tightening belts.
By November, the number crunchers were back at their crystal balls, cancelling orders and working out their share of a market that looked to be 100,000 new car sales for 2009.
By the end of last week, as distributors were saying they would be "very happy with 100,000" most expectations, particularly among dealers at the forecourt frontline, were that selling 80,000 new cars would be optimistic.
The impact of such a fall will be severe. Dealers, carrying substantial debt on premises and stock, will need the banks to offer some support and understanding.
As you move up the supply chain, the problems are just as tough. The auto industry is like a big tanker: it's very difficult to change direction to suit fickle consumer demands. The production lines, mothballed for extended periods over Christmas, have produced more than enough metal in recent months to sate our motoring needs at present.
At some stage industry bosses must also call time on new product development - or at least delay their arrival - in order to allow distributors and dealers to sell off their current stock.
For several years now, car firms have pushed to shorten the traditional seven-year lifecycle of models, hoping to offer customers new versions better suited to their ever-changing tastes.
The problem is, with each new car costing €1 billion from drawing board to showroom, prices, production volumes and lifecycles are increasingly dictated by the hefty fixed costs. Parts contracts for everything from the radio to the cloth on the seats are agreed over years and in many instances bind the car firm into purchasing a specific quantity of those parts. With suppliers themselves struggling, this only heightens their determination to ensure these obligations are maintained.
The travails of the US auto industry have been well reported and will continue to make headline news in the months ahead. It now seems inevitable that some major restructuring and potential amalgamation is in order, particularly with General Motors and Chrysler. European and even Japanese brands are not immune.
The slump has been evident even at Toyota, the world's biggest auto firm and often regarded as one of the best-run companies in the world. Less than two months ago it was predicting an operating profit of almost €5 billion, itself a third of earlier projections. Now it believes it will be almost €1.4 billion in the red.
Government bailouts seem the order of the day. German, Swedish and British governments are preparing various assistance packages to their car brands and it seems that as European consumers decide not to buy new cars in showrooms, they are being forced as taxpayers to pay for them nonetheless.
Yet for all the cutbacks likely in the next few months, cars will still be sold. By the very nature of the vehicles, cars will need replacing. In some instances extending the life of a vehicle is not only costly but also dangerous. Thankfully tests like the NCT mean that most of the national fleet is safe and secure, but the introduction of another scrappage scheme would seem eminently sensible, both as an incentive to improving the quality of the cars on our roads and in offering some succour to the thousands of people whose jobs depend on the motor trade.
The likelihood is that, while buyers will be more stringent in their research and purchasing decisions, they will still be tramping the forecourts. It will be tougher to sell, but there will still be sales.
The focus will remain on diesel sales, with motor tax proving more critical to sales than most industry observers expected. With rates varying from €104 to €2,100 depending on the car's official emissions, buyers are increasingly wary of buying big-engined petrol models.
Fuel prices are relatively low now, but the problems of limited supply remain. And that's where the major focus is likely to fall: alternative fuels. As dark as the economic climate looks right now, inevitably we will return to growth. When that time comes, new consumer trends will emerge and many are predicting an increased interest in vehicles that don't depend on fossil fuels.
This year will see the introduction of a new Toyota Prius, along with several other petrol-electric hybrid derivatives, from manufacturers like BMW and Mercedes.
We can also expect significant improvements in terms of performance and fuel economy from these vehicles. Next up will be plug-in versions, where the battery can be charged from the mains electricity, along with the current system of recharging through the engine.
This secondary charge system will further increase the time spent running on electric power alone before the engine has to take over. Every little bit helps in reducing fuel consumption.
While industry figures are loathe to request the government tinker any more with the tax bands, a lower band for cars under 100g/km of carbon emissions would seem appropriate if the politicians do actually want to lower emissions and not simply milk the motorist for cash under the guise of a green tax scheme.
It's going to be a tough year for car sales, but once consumers start to believe their jobs are secure, a level of confidence will return. January is unlikely to see the spending splurge on new numberplates of previous years, but the industry is hopeful of a pickup in sales in the Spring. If there is a silver lining to this current cloud, it's that if you are on the market, there's never been a better time to buy. And just like the recession won't last forever, neither will some of the deals on offer.