Finacial Crisis and Car industry Future prices of cars


It is rather banal to talk about the fact that current global economical crisis and recession are reflected in every field.

Car industry is not exclusion either. It suffers serious difficulties and financial fluctuations both in the world and in Georgia. The representatives of Georgian auto federation declare that the current crisis and August war events caused eight ten times reduction of car selling in Georgia.
Auto business was one of the victims of the crisis caused by August war events. It was a big strike for auto business when the banks stopped loaning auto credits. Consequently, demand reduction in the high and average price segments and importers desire to timely sell imported cars, caused price reduction. Many importers were induced to sell the cars imported before August events at the price below than their intrinsic value.
According to information portal, at present in Georgia operates 28 dealers, 14 of which are officially registered, while the rest are unauthorized dealers. Selling rate decreased both for official and unauthorized dealers. The sales rate that was observed before world financial crisis has slumped considerably. The selling of cheap cars has decreased by half, while only 10 percent of expensive cars are being sold. Auto companies’ official dealers are suffering the shortage of selling either. For instance, Toyota sales figures are worsening too and it decreased by 40-50 percents. Major part of Toyota’s sales was coming on corporative clients. Company is planning to announce 15% summer discount in order to preserve current clients and attract new ones.
General Motors representative office imports OPEL Cadillac, Chevrolet automobiles. General Motors official dealers in Georgia LTD AutoHouse and LTD CarPalace declare that one of the main factors in overcoming the difficulties is to be more concentrated on clients, this is especially important when dealing with corporative clients. In recent months, the portion of sales for organizations has considerably increased. This is rather surprising in terms of current crisis, but the company representatives declare that the sales rate in January 2009 has increased by 10 percents in comparison with the same period of 2008. As it turned that there is great demand on economy cars in Georgia either.

Despite the statement of General Motors representative office that their sales in January of 2009 have increased, their head office in US cannot boast with such optimistic data. The company, just like whole US auto industry, has big financial problems. When George Bush’s administration assigned aid in amount of $17.4 billion to the giants of American car industry, General Motors and Chrysler, it was initially clear that this would not be enough to save these giants and auto industry. This was just drop in a bucket. Afterwards the situation in car industry became even grave. The volume of car production has decreased by 37.1 percents in comparison with the data of the previous year. 16.1 million cars were produced in USA in January 2007, while in 2008, the number was 13.2 million and in 2009, it decreased to 9.5 million cars. Besides this GM was anticipating closure of nine factories last year. However, situation is even more formidable, US giant had to close fourteen factories that means 2000 jobless dealers and abolition of 47 000 working places, 20 thousand of which were located in USA.
In the second half of February, the abovementioned two companies published the rescue plans in which they were asking for help from the government and assignment of additional billions of dollars. GM declared that it needs additional $16.6 billion in order to overcome crisis, apart from $13.4 billion that it received from Bush administration. At the same time, Chrysler demands additional $5 billion from the government.
GM is expecting aid from other sources too. Its branches are awaiting help from local authorities. GM has serious problems not only in USA market, but in Europe also. GM Europe that consists of German Opel, British Vauxhall and Swedish Saab is in a crunch either. Last year, GM car producing volume decreased from 1.83 million cars to 1.55 millions, while the loss increased from $524 million to $2.8 billion. Therefore, GM calls for help not only USA government, but European countries’ governments also. American concern is willing to give 50% stake of Opel to German government in exchange for aid.
Chrysler is seeking some other methods of overcoming the crisis too. Chrysler’s rescue plan includes cooperation with Italian Fiat and production of new economy models by using its cheap parts. The company is trying to stay independent and survive by all means. The working plan of cooperation is not fully elaborated yet, but this possible deal gives some optimism to Chrysler. The company hopes that together with Fiat, it would be easier to fight the crisis and production will be reduced only by 100 000 cars a year. Car producing companies sought help in United Auto Workers (UAW) too. However, the last one refused to cover part of health insurance for the retired workers.
Government aid matter is rather ambiguous. Since, the government’s team of experts should decide several issues such as – Is GM able to avoid bankruptcy in case of assigning additional funds to it. Does the Chrysler have any prospects as an independent company even together with Fiat? Maybe it would be better to divide and sell it by stakes. For instance, to sell such brands as Chrysler’s jeep until it is valued. What should the rest auto industry members do that are beyond government’s attention, but are facing huge difficulties either? Obama’s administration should decide these matters up to 31 of March.
Financial crisis is a complex event and of course, it had its affect on automobile spare parts producing companies also. According to the data published by MEMA-Motor and Equipment manufacturers Association, whole industry is at a deadlock. During recent eighteen months the number of employed people in this field decreased from 783 000 to 653 000. One third of suppliers are facing serious difficulties and the rest of them will share their fate soon. However, not every company is in the hope government aid and tries to increase sales with its own efforts. For instance, Hyundai – it’s surprising that this South Korean giant increased its sales in USA by 14 percents. Correspondingly, its stake in US market grew from 2.1% to 3.7%. Moreover, Hyundai’s increased sales figures were a result of new expensive model appearing in the market and this happened in the times when the demand on expensive cars is reduced on a world scale. The point is that despite the fact that Hyundai has the image of cheap trademark it was the first time when Hyundai produced its expensive model – Genesis that is sold in Korean and USA markets. Despite the severe competition, when such models as Audi A4, Jaguar XF and Cadillac CTS-V enter the market, this model was already named as a South American year model. Genesis starting price is $32.250. The secret of success of Hyundai is the following: in terms of economic recession, though Genesis belongs to expensive automobile’s class, its price is by $13.500 less than the price of similar class models of other trademarks such as BMW. In terms of such success, Hyundai plans to produce relatively “cheap” expensive model that will be the main rival to Mercedes and Ferrari sport cars. Moreover, Hyundai implemented new method of consumer encouragement and it guarantees to buyers that if they loss a job in a year after purchasing the car Hyundai will take back it. This method justified itself and other companies plan to put the scheme into practice.
As regards to Georgia, traders of Tbilisi auto market reckon that the main reason of sales reduction is that banks stopped issuing loans. Generally, the sales figures in 2008 are considerably lower than that of previous years’. However, before August was events, the sales were even increasing and they were twice as much as the in 2007.
TBC Bank continues to lend out auto installments, but the demand on credits is quite reduced. The reason is that banks have established stricter terms of loans and besides this, the major role is playing current economical situation. Bank is planning to take measures in this direction. It is going to improve the terms of loans and conduct other encouraging events.
Georgian market has one peculiarity – market is full of used automobiles that are mainly imported from USA, Germany and Japan. Due to low prices, used cars will be dominating on Georgian market for a long time. In previous year, 95% of sales were at the expense of used cars. In 2008, this correlation changed – 15% of sales were new cars, while the used cars sales were 85%. This was mainly defined by the simple installment procedures. Besides, the banks started to offer different products to consumers. In addition, world’s leading brands opened representative offices in Georgia.
However, there is not a great demand either on new or used cars in Georgia. The future prospects in Georgia and in whole world are not promising declare the experts. Next few years will be especially difficult, until the country’s economy recovers, and banking sector regains own footings in order to start crediting with its full load. Without this, it would be impossible to talk about auto business progress in Georgia.