Double dip in the road
24 July 2009
Some sectors of the market seem less certain than others, and the road ahead for the automotive electronics industry seems more unpredictable than any other.
A few months ago my colleague, Paul Wolfe, wrote about his concerns over the consequences of the car scrappage scheme that many government’s around the world have introduced. In Throwing away our morals he suggested that by condeming older cars, which are perfectly serviceable, we are wasting time, energy and raw materials, even though, the counter-argument goes, the new cars would be more fuel efficient, cleaner and more recycleable.
It seems hard to believe that these latter benefits would out-weigh the former negative effects. A quick fix for the automotive industry therefore, may not be that well thought out in the longer term for the overall environment.
I read a report today that pours yet more cold water on the whole situation. iSuppli’s report on the global car market suggests that all these governmental car scrappage schemes could have ‘rescued’ the car market to the extent that there may still be 52 million cars sold in the world in 2009. This is down a huge 25% on 2008, but all the same represents a very bad year without being terminal for most automotive companies. A market of 52 million high value units is a market that is still very important and if this was the low point, then things can only get better.
But what if this is not the low point? What if the governments’ scrappage schemes had distorted the market? Richard Robinson, iSuppli’s Principal Analyst for automotive electronics, has reached the conclusion that: “These scrappage programmes could have a negative impact. They will simply bring forward – and some would say, distort – the natural buying cycle, creating a double dip.”
Robinson continued: “Scrappage programmes are also having a disproportionately negative effect on Tier-1 automotive infotainment system suppliers, as many countries have built-in green incentives with the maximum benefits given to those consumers who purchase lower-emission and, hence, lighter and cheaper vehicles. On the whole, these vehicles tend to be bought from the mid and entry-level classes, which typically sport fewer added features. The result is fewer sales of feature-rich vehicles that offer a smaller number of the media, navigation and infotainment features provided by the top auto electronics suppliers.”
The report does also highlight some areas of potential for automotive electronics – noteably that of cheaper navigation systems – but these are likely to be the ones sold as separate units rather than as an option for upgraded cars and so offer little consolation for the automotive manufacturers.
So maybe the scrappage schemes will have detrimental effects on the environment and maybe it will not end up having much of a positive economic effect for the automotive industry. But whether this is a dip, or a double-dip, we’ll wait and see if it’s an uphill, or upwardly successful, journey next year.
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