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Last year Volvo took European orders for 42,000 heavy trucks in the third quarter. This year, the figure was just 115. Results from the truckmaker on Friday capped a week in which not just automotive sales forecasts, but worst case scenarios, had to be torn up and started once again.
Volvo was hit by order cancellations as Eastern European resilience was sent hurtling into the dustbin of bull market ideas. At the same time purchases of cars are collapsing in Spain and the UK in the wake of housing markets doing the same. US car sales next year are likely to be at the lowest level since 1992, almost a third below their recent peak.
On Friday the smallest US assembler, Chrysler, announced further, radical, cost cutting. Fully a quarter of its white-collar workers are to go – volunteers are sought now, with forced redundancies to follow by Christmas. All discretionary spending and non-essential capital spending is under the knife, with overheads to be slashed, as the tough new reality bites.
Management of Daimler will no doubt be breathing a sigh of relief. The German group’s purchase of Chrysler in 1998 is a case study in hubris. Yet selling 80 per cent of the group to private equity group Cerberus Capital last year for $7.4bn, now looks like a masterstroke. It may also have allowed Cerberus to install more ruthless management, hence wielding the knife so dramatically while also pursing talks with General Motors for a potential merger.
The rest of the industry should take note. An excess of car production means that manufacturing levels must be adjusted materially downwards. Toyota, for instance, still has about 4,000 US workers in training while its pick-up truck assembly lines lie idle. Making deep cuts before they are forced is the only chance left for making profits in an industry that is driving headlong into a wall.
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