Not a day goes by without a revolution in the automotive world. The upheaval has been going on for twenty years with no end in sight, but through it all there are still some trends that have remained clear and unchanged.
Foremost is the ascent of the Asian automakers, represented symbolically by China, now both the world’s largest producer and consumer of automobiles. Japan and South Korea are also now ranked among the top car producing countries of the world.
Mirroring the rise of Asia is the loss of market share of traditional European manufacturers, who in ten years have gone from producing one third of the world’s cars, to only one fourth.
Nearly as prominent is the fall, and subsequent partial resurrection, of American industry.
There is a common vein that runs throughout these changes, characterized by a series of alliances, consolidations, and corporate fusions, aimed at attaining the sheer size and economies of scale required to be a player in the global auto arena. Aided by these maneuvers, automakers tend to expand operations to an ever increasing number of different countries, to avoid the risks posed by the intrinsic cyclical nature of the automotive market.
The upheaval has been fueled by market forces but it has also been opposed at every step by the industrial policies put in place by wary governments. To see the evidence, one need only to remember Obama’s massive financial assistance to save Detroit, the political efforts to keep Opel in Germany, or the various subsidies conceded by Zapatero to keep factories in Spain.
Despite a natural migration towards new territories, the governments of developed countries have made great efforts to remain the bastion of the automotive industry, which to this day continues to be an essential reservoir of jobs and a key pillar in the balance of worldwide commerce. Their objective has been achieved both through strong national corporations, such as in Germany or France, and by the presence of foreign companies, like in Spain and the UK.
The Italian auto industry was met with a different set of challenges when compared to other European countries, due to the fact that Italy has only one major automaker that was already in decline due to its relatively small size and high costs.
The merger with Chrysler was a masterful decision. The move helped center the crosshairs on rescuing a company that had become too fragile in the face of new competition and allowed for the preservation of a bulwark of the Italian economy.
The last two years, however, have seen these achievements fade from the horizon.
Fiat’s market share in Italy and in Europe is in continual decline, as is the number of cars built in Italian factories. The number of vehicles produced in Fiat’s Italian plants has slipped from 1,271,000 in 2001, to less than 500,000 in 2011.
When economists are presented with these kinds of numbers, they bring up the “senility effect,” a manifestation of the effects of a corporation in decline, moving inevitably towards death. These sobering facts behoove the contemplation of the future of a sector that still employs 160,000 people in Italy, mostly in the robust components industry, and brings in €40 billion a year. Even the components industry, although it produces for an international market, can hardly live without the driving force of a nearby automaker.
Compounding this is a loss of the research and development momentum that has produced a series of extraordinary technological innovations, even in times that were already difficult for Italy. The Frankfurt and Detroit auto shows this year saw electric and hybrid offerings from every major automaker, and advances in safety and control electronics. Silicon Valley is coming to Detroit could be the sector’s new slogan, but who is coming to Torino?
Statistics show that in recent years, the average hourly cost of Italian labor, including social obligations, has fallen well below that of other western European states. To transform this advantage into a reduction in cost per unit requires an increase in efficiency, a task that itself requires a concerted effort and steadfast determination on the part of Fiat, Labor Unions, and the Government.
It is also in this context that a recent alliance between GM and Peugeot-Citroen signals a new round of re-proportioning of production capacity as a function of the reduced automobile market.
At this point, because it is unlikely that Marchionne has lost that primitive passion that pushed him to accept a challenge of such importance for Italy, the time has come for the Italian government to accept its responsibility, along with Fiat and the Labor Unions, to develop a strategy for the reconstruction of a strong and competitive Italian presence in the automotive sector. Ever more complex and difficult, it is nevertheless a sector that cannot be ignored without putting Italy’s industrial future further at risk.
Spare the talk of dirigisme or of interference with the markets. The collaboration between government, corporation, and unions, albeit many years behind in Italy, is a strategy used by many other countries to ensure a future for their economy. A democratic government should in fact use its industrial policy as a way to bring together the various positions. Dictatorships impose, but democracies should guide.