"The automotive market has always been a rollercoaster ride. We can expect many changes between now and 2020." This was the forecast made by Francisco Pérez Salinas, after-sales director for Seat, during a roundtable discussion on the European car industry at this year's edition of IESE's Automotive Industry Meeting. The session was moderated by IESE Prof. Pedro Nueno.  

As evidence of the volatility of the automotive sector, Pérez Salinas pointed to the way the fortunes of leading car firms have waxed and waned in the past: "Six of the top 10 carmakers in 1950 were no longer in the top 10 in 1970."

In order to overcome the difficulties currently facing the sector, "companies will have to innovate as much as they can," said Pérez Salinas, who pointed to Einstein's observation that "Imagination is even more important than knowledge because knowledge is limited."

Peréz Salinas' comments were echoed by fellow guest speaker Dr. Bernd Gottschalk, former president of the German Association of the Automotive Industry (VDA), who said that the most important innovations in the sector in the coming years will bring higher fuel efficiencies, greater productivity and increased vehicle safety.

Future growth in demand will almost certainly come from emerging markets, in particular China and India, as the triumvirate markets of North America, Europe and Japan begin to stagnate. European carmakers, meanwhile, will need to keep their production bases in good shape as fierce competition from companies such as India's Tata and Japan's Toyota begins to raise price sensitivity among European consumers.

By far the biggest challenge facing the automotive sector is overcapacity. In the wake of the crisis, over 15 million fewer cars have been sold. To re-stimulate vehicle sales, governments across Europe have followed the example of Germany and have offered scrappage schemes, which provide consumers with financial incentives to swap their older models for new ones. However, as Gottshalk pointed out, "sales are still down by 10 million units and European governments are forecasted to end these programs as soon as early next year."

The session's final guest speaker was Richard Viereckl, a partner of German consultancy firm Management Engineers GmbH, who stressed that one of the most important consequences of the crisis has been the massively increased involvement of Western governments in the industry. "Governments in the U.S. and many other countries have adopted a very powerful stakeholder role in the industry," he said.

However, for this increased stakeholder role to pay dividends automotive companies must be urged to address a range of problems including over administration, complex structures and incomplete post-merger integration.