Martin Jahn, head of the Automotive Industry Association and Volkswagen Rus CEO, thinks car producers will be recovering from the slump for three to five years. Then the fuel steam lovers will be ousted since quiet and sterile electric cars will take over at the turn of 2012 and 2013. By then, the Czech Republic might have its first wave of car-scrapping bonus over.
What phase of recession is the automotive industry right now?
The majority of opinions agree that we are slowly reaching the end of the recession. The question is whether we will be able to bounce back quickly or whether we will stay at the bottom for a while. The crisis has different manifestations. In Russia, the drop is more than 50%. On the other hand, markets like China are growing by dozens of percent. All that on the basis of car-scrapping bonuses whether in Germany or China.
There is a car-scrapping bonus to support car sales in China, where millions of people are on a waiting list for cars?
Yes, they have car-scrapping bonus in China. In the current situation, there is no market that could grow without support. Global recession and financial crisis hit all the countries. China was ready for it the best, it had great financial reserves that it was able to use on its internal market. Car-scrapping bonus is a global phenomenon in fact. It works in China, it worked in the US. The bonus has slightly different parametres in each country but most of the countries, US, China, Japan, most of Europe, introduced car-scrapping bonus.
So the communist China may become the country that will lead the world economy out of the crisis?
Today, China is able to activate its domestic market and that is why it is one of few countries that are not hit by recession. China may come some sort of an engine, world economy supporter. China is changing from an economy based mainly on export to the US into an economy with strong domestic market. Considering the size of China, it may help the world economy significantly.
How are car markets doing outside China?
Averge year-on-year drop is some 20%. Automotive industry will take three to five years to get out of the crisis before it reaches the 2007 level.
Will the producers be the same or someone will disappear from the market, somebody will be taken over by a stronger name?
Ownership structure is changing already. You can see it in the Chrysler Fiat merger, General Motors is undergoing bankruptcy proceedings, Opel is being sold to Sberbank, Magna, GAZ consortium. Car brands such as Saab, Hummer and a likely sale of Volvo. Those are relatively big changes. The ownership structure of car makers is changing significantly in a very short period of time.
Do Magna and Sberbank represent rescue for Opel even though they are themselves in a great loss?
That’s hard to tell. In the past, bold rescue plans of car brands succeeded, for example the recent Fiat one or the Chrysler’s in the 1970s. The result depends on the agreements on technological transfer between the General Motor and Opel. Sberbank is a very strong bank with huge resources, it is in fact Russian state bank. Personally, I see many question marks accompanying this transaction. Miracles happen, though.
Is it possible, under current circumstances, to expect expansion of Chinese car makers to Europe?
I don’t think that the crisis would significantly speed up the entry of Chinese car makers onto European market. However, we need to expect greater role of Chinese and Indian producers in the future. That is why it is necessary for car makers like General Motors to undergo a healing process. Such companies will not be kept alive by subsidies from US or German government but only by cutting the costs. It is naïve to think that these companies will preserve all the current positions based on the state subsidies. Demand for cars dropped 20% and so there has to be some correction in the automotive industry employment.
Should cutting down the costs also affect the production programme? Does that mean that instead of big cars smaller cars, cheaper cars with more effective engines will be produced?
This trend started before the crisis though it might be accelerated now. Smaller and cheaper cars will definitely sell better. There will be a gradual shift towards the alternative drive. It won’t be any overnight revolution. Development cycle of a new car is somewhat long.
You said that the car-scrapping bonus is a worldwide phenomenon. Is the potential Czech bonus of CZK 30,000 good enough to motivate Czechs to exchange their old cars for the new ones?
I think that it is a reasonable stimulus, there is no need to overdo it. It is a question of psychology, people will get some bonus. It is also advantageous for the state. If the average price of a new car as part of the programme is CZK 300,000, the VAT is some CZK 48,000 so the state will profit from such a transaction. Therefore, the argument of whether or not state can afford it loses its value. The state will get the bonus right back as part of the VAT and with some interest on top.
Is it necessary to support car sales in the Czech Republic at all?
The Czech Republic has one of the oldest car fleets, used cars from western Europe that nobody wanted were brought in. If the car-scrapping bonus would contribute to the exchange of such cars for the new ones then it is definitely worth it. It also should be remembered that Europe accepted the car-scrapping programme based on the proposal of the Czech EU presidency. EU countries said yes, this will help us overcome the first phase of the recession, let’s do it. Then the Czech Republic, having almost the strongest automotive industry in Europe based on the head count, says no, we profit from what Germany, France, Great Britain do. That gets us bad reputation. It would be appropriate if an impulse, regardless of how small, would also come from the Czech Republic. Car-scrapping bonus in the Czech Republic is suitable also from some sort of solidarity. Also, the bonus effect in some countries will vane and then the Czech bit could help as well.
The biggest European countries, however, do not care much for solidarity. They amend the Maastricht criteria as it suits them, they did not do anything about the Canadian visa…
Yes, there are many arguments against it. I am just saying that many of the European countries introduced the car-scrapping bonus because they considered it to be a good crisis measure. Moreover, the fact that there is no bonus in the Czech republic is harming Czech suppliers when looking for commission with foreign companies.
If the car-scrapping bonus will be introduced should the car retailers add another discount?
Definitely, but the prices extremely fell lately. The question is how much space the dealers still have. I think that most of the brands will introduce special programmes alongside the car-scrapping bonus.
What will the car sale and production be like at the end of the year in the Czech Republic?
I still think that the production will grow compared to last year. Due to the opening of the Hyundai factory in Nošovice, German car-scrapping bonus that prevented the production fall in Škoda and supported the production in Kolín-based TCPA. There will definitely be a drop in sales, I etimate some 10% to 125,000 new cars.
Will there be anymore lay offs this year?
Drop in employment was much smaller than the drop in sales around the world. Companies are trying to behave socially and responsibly. It shows, however, that Czech labour law was not ready for that. There are no functioning accounts of working time, no functional system of shortened working week like there is in Germany. If we should be ready for a cyclical development of economy, it is necessary to introduce at least one of these instruments and quite fast too. It is better for the employees to get less money while working less hours than to search for another job. I perceive this amendment to the legislation as very necessary when it comes to crisis measures.
Current labout law allows for the working time accounts…
That is true but the set up of those accounts is very unfortunate. It does not offer such flexibility as is necessary in times of recession during extreme fluctuation of demand.
Should the expensive development of ecologically effective technologies be subdued during crisis or should the state preserve the development by subsidies?
I have always thought that these changes should be driven by demand. If the political representation wants faster introduction of ecologically acceptible models, it should motivate the customers to buy them.
Toyota, though, produces its hybrid model Prius without state subsidies. Is state support of ecological cars development necessary?
The question is whether a car with hybrid engine really brings something special. There are also other technologies allowing for low consumption. The future lies in electric engine for sure. There are many unsolved problems with electric cars, be it time of charging, recycling of the batteries, distance, safety and their resolving will take some time. Nobody can develop an ideal car over night. Or it would cost double of the regular car like Chevrolet Volt. Who will be buying it? I think that the first mass produced electric cars will be on the market around 2012.
Does it make sense for ČEZ to develop its own electric car?
That seems absolutely logical to me. ČEZ is looking for further possibilities of using the elctric energy that it produces and thus create new market for it. I think that the energy companies should participate in development of these cars.
One of the biggest car fairs in the world is taking place in Frankfurt at the moment. Is it sensible to organise a magnificent fair in times of recession?
Definitely. Škoda, for example, introduced its first Superb Combi and that is one of the ways of helping the company during recession. It is necessary to come up with new models that have a chance to succeed on the market. I don’t think that because of the crisis everyone will start to buy only the small cars.