EUROPE’S mass automakers sought to dazzle at the Paris Motor Show this week, revealing more than 100 new models ranging from Opel’s cheap and cheerful Adam micro-mini to the McLaren P1 supercar, expected to cost more than US$240 000.
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But no amount of shiny chrome can distract automakers from the deep-rooted challenges facing them in the European market, the world’s most competitive and its worst-performing.
Painful, unpopular decisions are now the order of the day. Even the German manufacturers, which had looked crisis-proof, are no longer immune.
Volkswagen, Europe’s largest automaker, which had been doing well, stealing market share from its struggling competitors, warned Tuesday that business conditions had become “significantly more difficult”.
The US car market crisis in 2008 was sharp and dramatic. Europe’s slump is shaping up to be a long distance marathon with the finish line a hoped-for 2015 recovery. But if that turns out to be a mirage, the industry faces a bleak future indeed.
“Volume manufacturers need a market recovery — the measures they’ve put in place like cost cutting and staff reductions won’t be enough to return to an acceptable profitability if the market doesn’t bounce back,” said Stefano Aversa, co-president at consultancy AlixPartners.
The Paris show will demonstrate the strategies different automakers have adopted to deal with the crisis.
One will be less of a buzz around full-electric small cars than in previous years, since the initial costs have proved prohibitive to cost-conscious consumers.
Green crossovers should attract attention, however, as carmakers hope to lure environment-conscious families. Low-cost, no frills models like Opel’s Adam and the new Sandero, made by Renault’s Romanian affiliate Dacia should prove popular.
Since the Geneva Auto Show in March, the crisis has also spread to the premium segment, as growth in China slows.
Last week, Daimler warned profits at its flagship Mercedes-Benz car division this year would fall. As recently as late July, it had reassured investors it expected operating profit to be flat at nine billion euros.
Volume carmakers are the real victims of the slowdown, however, having seen their market share fall from 85% 15 years ago in Europe to 65% this year, losing out to premium and low-cost players, figures from AlixPartners show.
Sergio Marchionne, Fiat chief executive and president of industry lobby group ACEA has called for a Europe-wide agreement on plant closures. But with carmakers each going their own way, his strategy looks dead in the water.
Still, a meeting of ACEA members in Paris during the show will be closely watched for any new developments.
For mass-market manufacturers Peugeot, Opel, Fiat and Ford, whose cash-burning surplus plant capacity has swollen in step with the market’s decline, hanging on for a recovery seems to be the strategy — and a risky one.
General Motors Opel unit has amassed US$700-million in losses in the first half of this year, prompting analysts to call for its disposal. GM, which is part-owned by US taxpayers, has poured a total of US$16 billion into the brand over the past dozen years with little to show for it.
Morgan Stanley forecast earlier this month that Opel could burn a further US$12,3 billion of cash over the next 10 years. GM says it believes it can turn the unit around, with 23 new vehicles to be introduced by 2016.
Ford, which promised decisive action in July, continues to weigh its European options. It said this summer it expected to lose more than US$1 billion in Europe this year.
Any near-term rebound will be slow — if it happens at all –– and more than offset by tougher competition.
And if no recovery materialises, the consequence could be a new round of auto industry consolidation in Europe.