IMI Magazine

IMI Magazine

News Analysis

Oil: at last, the time for hybrids?

Though fuel suppliers were prompted to cut prices after the latest oil panic - heightened by Hurricane Katrina which halted output in the Gulf of Mexico - this should not mask a problem which never went away after the last scare: namely that demand is outstripping supply. What effect will this have on the motor industry?

In the UK, Gordon Brown has ruled out tax cuts to further ease forecourt prices and instead has blamed Opec for not increasing output enough to meet burgeoning Chinese demand. 

In North America, where petrol prices typically are around 90% higher than at the beginning of the year, there has already been a significant impact in the marketplace with consumers turning away from SUVs in favour of smaller vehicles. The same trend should be anticipated in Europe where, of course, fuel prices are much higher.

For vehicle and component manufacturers, the rising cost of energy should act as a strong spur for the development of fuel saving technology and the application of appropriate systems such as adaptive cruise control and automatic stop/start engine cut-out. The introduction of hybrid vehicles, now gathering pace after a series of disappointing starts when consumers were reluctant to recognise that the high initial outlay could be recouped by lower running costs, is likely to be given a boost too.

Jaguar poised to alter course

After recent traumas – including huge financial losses, plummeting sales in the all-important North American market and a lacklustre performance at home – Jaguar may be turning the corner.

Pivotal to its future is the XK sports model unveiled at Frankfurt; this represents the kickstart for a new era which recognises that the marque has to work to its own agenda rather than taking on BMW and Mercedes-Benz as a volume luxury car producer.

Big Cat output during the current year is expected to dip below the 100,000 marker – half of the original target – and there is speculation that X-type will not be replaced once the current model runs out towards the end of the decade.    

But this should not be regarded as failure if the marque can achieve sustainable profit for greater exclusivity, positioned between limited volume Aston Martin and high volume, multiple offerings from BMW/Mercedes-Benz. As Porsche has demonstrated with Cayenne, image is preserved when moving into different product segments – provided the elitism is maintained.  China’s sign of intent

After the EU’s spat with China over textiles imports, how long before there’s a similar skirmish in the motor sector? Even the most optimistic forecasts of market growth in China suggest that production capacity will far exceed domestic requirements for the foreseeable future. Roughly translated, that means 3m units will be available for export during next year alone.

For Western manufacturers, that must revive recollections of the Japanese motor industry’s export onslaught which caused so much friction in the 1970s and 80s. And make no mistake over China’s  ambition to follow suit; signs of this were provided by the presence of three of its vehicle producers at the Frankfurt auto show.

Winning back Mondeo Man

In an attempt to breathe more fire into its contender in the upper medium segment, Ford has indicated that the next generation Mondeo – scheduled to be launched early in 2007 – will place a greater emphasis on styling than the current model. An indication of likely design nuances of this and other future Ford cars has been provided by the Iosis concept vehicle displayed at Frankfurt.

The degree of success achieved by this new direction will determine how far Ford is able to redress the erosion in recent years of its European market share.    

The company is clearly frustrated that the current Mondeo wins plaudits on almost every count and is praised for its overall competence, but languishes in the marketplace against less worthy competitors due to consumers tending to favour style and image over substance.

With the new Mondeo, Ford’s challenge is to achieve the triple feat of maintaining the practical attributes of the present model while overlaying some styling excitement and at the same time boosting the brand image to attract back into its fold deserters to the likes of Audi and BMW.Fiat’s new partner

News that Ford and Fiat are joining forces in the small car segment is positive news for both companies. The plan is to share the design, development and manufacture of a vehicle which will replace the Ka and enable Fiat to produce a new Cinquecento. The two models will have a common platform and share an assembly site in Poland, thereby conforming to the current practice of producing entry level vehicles in Eastern Europe.

For Fiat, co-operation with Ford represents the first step towards developing the kind of joint ventures which are vital to its survival. After the GM debacle and in the wake of MG Rover’s collapse, Fiat realises that no-one will be prepared to take a struggling car manufacturing operation under its wing.

Artful move on RVs

The move by Lexus, Mazda and Nissan to hire EurotaxGlass to provide long term residual value forecasts for selected new model launches highlights the sensitivity with which vehicle manufacturers are approaching the issue of used prices. The intention is that the analysis will provide a vital input towards refining the product planning function as well as fine tuning sales and marketing strategies.

This is seen throughout the industry as all the more critical following the experience of recent years with  many fleets suffering financial embarrassment after taking an over optimistic view of future values. As a consequence, the ability to demonstrate a model’s ability to hold its value better than its competitors is viewed as an important competitive advantage.It remains to be seen, though, whether this approach by the Japanese trio will succeed.

In the manner of economic theory, residual value forecasting is more of an art than a science and is liable to be blown off course by unforeseen events and competitor actions within the marketplace. No doubt rival manufacturers will be monitoring the effectiveness of this initiative with great interest.