Automakers Prepare for Deepening Decline in Europe Market

Ford Motor Co. (F), Bayerische Motoren Werke AG (BMW), Toyota Motor Corp. (7203) and their competitors are preparing for a deeper slump in European sales after deliveries at the beginning of the year were at the low end of their expectations.

“The market is very difficult,” Didier Leroy, Toyota’s chief for the region, told reporters at the Geneva International Motor Show. “The start of the year is even worse in terms of the market than was planned a few months ago.”

Toyota and BMW are predicting a contraction of about 5 percent in Europe this year, the fifth straight annual decline, as the sovereign debt crisis prompts people to rein in spending. Deliveries tumbled 6.6 percent to 1 million vehicles in January, the European Automobile Manufacturers Association said, with the decline accelerating from a 1.4 percent drop during 2011.

General Motors Co. (GM), which lost $747 million in Europe last year, announced plans last week to team with PSA Peugeot Citroen in a bid to turn around operations. Fiat SpA (F), which controls Chrysler Group LLC, is talking “continuously” with Suzuki Motor Corp. (7269) and Mazda Motor Corp. (7261) of Japan, Chief Executive Officer Sergio Marchionne said in Geneva today, while BMW is seeking a partner in North America, where luxury sales are more buoyant.

BMW-GM

Ford, which predicts a loss of as much as $600 million in Europe in 2012, is stopping production on some days to cut inventory, Stephen Odell, its chief for the region, said at the Swiss show late yesterday.

“Clearly the demand is at the lower end or indeed below the lower end of our expectations,” Odell said. “Frankly, it’s almost impossible to predict.”

BMW said today it’s in talks with GM on various topics as it seeks a U.S. ally, adding that the Detroit-based carmaker’s accord with Peugeot doesn’t threaten its own cooperation with the French company on hybrid technology and engines for the Mini small car. Stephen Girsky, GM’s vice chairman, declined to comment on any negotiations with BMW today.

“Europe will be an uphill battle,” Norbert Reithofer, BMW’s CEO, said in Geneva. Demand in China should increase by at least 10 percent, with “high single-digit” growth in North America, where the Munich-based company may add extra capacity, he added, with Mexico “always a place to look at.”

Forced to Blink

Automakers are struggling to make a profit in Europe as overcapacity, which executives estimate at around 20 percent, forces them to increase incentives and lower prices. Fiat and GM are the only companies to have shut European plants in recent years amid political pressure and union opposition to closures.

“The European financial crisis is having an enormous impact on the auto industry and -- once again -- is shining a light on the serious problem of manufacturing overcapacity,” Michelle Krebs, a senior industry analyst with Edmunds.com, said from Geneva. “The current financial crisis may force someone to blink, and the unions and governments to get on board.”

The GM-Peugeot alliance will jointly develop and build vehicles and combine purchasing operations, though the two have yet to say whether it will result in job reductions or factories closing. Peugeot will sell shares in a 1 billion-euro (1.32 billion) capital increase at a 42 percent discount, it said today, with the money directed at “strategic projects with GM.”

French Labor Minister Xavier Bertrand warned Peugeot Chief Executive Officer Philippe Varin last month against cutting jobs as a result of the GM deal. President Nicolas Sarkozy, who’s running for re-election this year, summoned Varin in November to ask him to reconsider plans to cut as many as 6,800 posts, including temporary staff employed by partners.

Consolidation Needed

“The alliance would help the market if it led to capacity reductions, but I don’t understand that to be part of the agreement,” Daimler CEO Dieter Zetsche said in Geneva. “The two companies clearly think they have a better chance together.”

Stuttgart-based Daimler doesn’t itself regard new partnerships as a priority, Zetsche said today. Hyundai Motor Co. (005380) has no plans to set up a strategic alliance in Europe, Allan Rushforth, the South Korean carmaker’s chief operating officer for the region, said in an interview at the motor show.

At Fiat, Marchionne has said repeatedly that the European market needs consolidation to address overcapacity. While the Turin-based company regards Suzuki and Mazda as “complementary” to its activities, it’s talking with every potential partner and hasn’t been “pushed aside” by the GM-Peugeot deal, being “technically” able to make deals with both carmakers, he said.

Marchionne also said Fiat could potentially move its headquarters to the U.S., though no decision has been taken.

No Worse

The down market has helped regional No. 1 Volkswagen AG (VOW3) increase its dominance. The maker of VW, Audi, Skoda and Seat vehicles raised its share of sales to 23.3 percent from 21.3 percent last year, according to industry figures.

“If GM and PSA believe that they have a better chance together, it shows that VW was right” to seek scale advantages, CEO Martin Winterkorn said. “It confirms our philosophy.”

Still, the European slide isn’t any worse than expected, according to Marchionne, and Daimler’s Zetsche said the market is likely to bottom out this quarter and to begin improving after that. There is now a lower risk of a “disruptive” crisis stemming from the sovereign-debt situation, he added.

To contact the reporters on this story: Chris Reiter in Geneva via the Berlin newsroom at 2499 or creiter2@bloomberg.net; Craig Trudell in Geneva via the newsroom in Southfield, Michigan, at ctrudell1@bloomberg.net; Ola Kinnander in Geneva via the Stockholm newsroom at 0714 or okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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Photographer: Chris Ratcliffe/Bloomberg

Toyota Motor Europe Chief Executive Officer Didier Leroy told reporters at the Geneva International Motor Show, “The market is very difficult.”

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Photographer: Chris Ratcliffe/Bloomberg

Toyota Motor Europe Chief Executive Officer Didier Leroy told reporters at the Geneva International Motor Show, “The market is very difficult.” Close

Toyota Motor Europe Chief Executive Officer Didier Leroy told reporters at the Geneva International Motor Show, “The... Read More

Photographer: Tomohiro Ohsumi/Bloomberg

Toyota and others are predicting a contraction of about 5 percent in Europe this year, the fifth straight annual decline as the region’s sovereign debt crisis prompts consumers to hold back on spending. Close

Toyota and others are predicting a contraction of about 5 percent in Europe this year, the fifth straight annual... Read More

Photographer: Jason Alden/Bloomberg

Covered automobiles ahead of the opening press day at the Geneva International Motor Show on March 5, 2012. Close

Covered automobiles ahead of the opening press day at the Geneva International Motor Show on March 5, 2012.

Photographer: Adrian Moser/Bloomberg

Ford’s Europe chief Stephen Odell said in Geneva late yesterday, “Clearly the demand is at the lower end or indeed below the lower end of our expectations.” Close

Ford’s Europe chief Stephen Odell said in Geneva late yesterday, “Clearly the demand is at the lower end or indeed... Read More

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