In Spring of 2008, Renault executives received notice from colleagues at Nissan North America about the health of the U.S. auto market. Prices for used cars fell significantly, and orders were also slow. The U.S. subprime mortgage market also began to crumble with securities losing value and adjustable rate loans began to reset with higher interest rates.
Renault’s leaders decided to cut 5,000 European positions, which later was raised to 6,000 through attrition and severance. Inventory was decreased so that cash flow and production could be closely monitored. Subcontracting costs were also lowered, and development of a sports car similar to the Nissan 350Z was halted with a postponed launch.
“The crisis started sooner for carmakers in the U.S.,” said Patrick Pelata, who was named Renault’s chief operating officer in mid-October 2008. “We looked to the U.S., and we said it was going to come to Europe.”
Much of this happened after Lehman Brothers filed for bankruptcy, setting off a global financial crisis. At the same time, Fiat decided to extend summer vacation closings of its plants after noticing a global collapse in new orders, including Ferrari’s. “The second half of this year and the first half of the next could be a true bloodbath,” Fiat and Ferrari Chairman Luca Cordero di Montezemolo told Automotive News Europe in July 2008. “By summer of 2009, we should have a clearer idea of the winners and the losers,” he said.
Through incentives and government aid the European auto industry was able to bounce back. However, the COVID-19 outbreak has temporarily shuttered factories and showrooms once again. Many executives and analysts have said that automakers learned lessons in 2008 that can help them to better navigate the current pandemic. “Since that time all car manufacturers have gotten more rigorous about capital allocation and trying not to spend more than required, and also about having sufficient cash reserves in case they face a similar crisis,” one expert said.
“The big advantage between the crisis now and 10 years ago is that capital markets are very liquid and interest rates are very low, so I am pretty certain we won’t see a cash crunch,” Porsche Chief Financial Officer Lutz Meschke said. For now, many automakers are looking into temporary loans that will allow them to cover fixed costs such as salaries to avoid any layoffs. This year, after imposing restrictions on movement and commerce in an effort to slow the spread of the coronavirus, Europe’s national governments pledged they would step in to help automakers again, with loans, direct payments or in a worst-case situation.
These guarantees have helped prevent automakers from cutting costs. It’s expected a similar helping hand will be extended in the wake of COVID-19, today.