General Motors Co. (GM) said Europe’s car industry will remain unprofitable at current vehicle pricing levels, while Volkswagen AG (VOW) said some competitors are at risk of going out of business without state aid.
Fiat SpA (F) and PSA Peugeot Citroen (UG) are producing “very scary numbers” with discounts of as much as 30 percent off gross sale prices, Susan Docherty, who runs European operations for GM’s Chevrolet unit, told reporters today at the Paris Motor Show. “Nobody can make money in Europe when you’ve got incentives at that level.”
- Special Report: Paris Motor Show 2012
Demand has plunged so much that deliveries continue to tumble, even with such large price cuts. Although discounting in Germany is at the highest in more than a year, according to industry publication Autohaus PulsSchlag, car sales across Europe may fall to a 17-year low, the region’s main auto-manufacturing trade group has predicted.
“It’s a bit of a despondent mood around here,” said Ian Fletcher, a London-based analyst at IHS Automotive who was visiting the Paris show. “It’s not like the Frankfurt show a year ago. Certainly for the mainstream European brands, it seems like, ’this is what we have for the future, but we haven’t really got anything to tackle at the moment.’”
GM, the Detroit-based owner of the Opel and Vauxhall brands in Europe, has racked up $16.8 billion in losses in the region since 1999. The business posted a first-half loss before interest and taxes of $617 million, and wrote down $590 million of goodwill. Dearborn, Michigan-based Ford Motor Co. (F) is projecting a loss of more than $1 billion in Europe this year.
“It is very aggressive out there,” Roelant de Waard, Ford’s sales chief in the region, said today in an interview at the Paris show. “You see that in the quality of the business from a discounting perspective but also the segments people are pushing into,” such as sales to rental car fleets and so-called self registrations by dealers.
Peugeot, Europe’s biggest carmaker after VW, has been burning through 200 million euros in cash a month as the market contracts, a figure that Chief Executive Officer Philippe Varin said today may fall by 50 percent in 2013. Paris-based Peugeot plans to cut jobs and close an auto plant, amid resistance from the French government, and has been selling assets to cut debt.
“It is unclear if all carmakers will survive without governmental help,” VW Chief Financial Officer Hans Dieter Poetsch told reporters yesterday. “Especially carmakers in southern Europe that produce small cars will be affected.”
Fiat CEO Sergio Marchionne told journalists today at the show that the Turin, Italy-based carmaker isn’t seeking aid from its home government or the European Union. Carlos Ghosn, head of Boulogne-Billancourt, France-based Renault SA (RNO), said at a separate press conference that he doesn’t foresee Europewide assistance being offered to auto manufacturers.
Volkswagen fell 2.1 percent to 143.30 euros at the close in Frankfurt, the lowest price since Sept. 10. Fiat dropped 2.1 percent to 4.23 euros in Milan, the lowest price in almost seven weeks. Peugeot declined 0.7 percent to 5.99 euros in Paris. Varin said Peugeot’s cash burn will end in 2014 and that it will reach savings targets for 2015.
Auto dealers in Germany, the region’s biggest economy, offered discounts on average of 12.1 percent off the sticker price last month, according to Autohaus PulsSchlag. Ford estimates that 30 percent of eight-month sales in Germany were self registrations, with the outlets then selling the vehicles at a heavy discount as a used car, and all automakers are participating, De Waard said.
“You have to live with the realities of the industry,” De Waard said. “If you don’t participate in something that is a phenomenon, that would make you uncompetitive.”
The ACEA carmakers trade group in Europe is forecasting that sales in the region this year will be at the lowest level since 1995. European auto deliveries may get worse before improving, Poetsch said last night, adding that the current market has never been more difficult to assess.
“In the past, countries have been able to stimulate the industry through scrappage programs,” she said. “The countries are in such a state that they don’t have the ability to pull those levers. We’re not seeing any quick fixes to this.”
Industrywide deliveries in western Europe may decline to 15.1 million or 15.2 million, Docherty said. Sales may drop to the “neighborhood” of 14.3 million to 14.5 million vehicles next year, she said.
Peugeot is forecasting an 8 percent contraction in Europe’s car market in 2012, with industrywide deliveries in France dropping 12 percent, and no improvement is likely next year, Varin said today.
Fiat chief Marchionne, who currently heads the ACEA, has been urging European counterparts to come up with a comprehensive plan to cut overcapacity throughout the region, a move resisted by VW and the other German carmakers. Fiat has cut investment spending by 500 million euros to preserve cash.
Marchionne said today that Europe’s car market may have bottomed out, and Fiat’s losses in the region may narrow next year, depending on how car prices develop. The Italian company controls a majority stake in U.S. manufacturer Chrysler Group LLC, and without that holding, “we would have gone through hell” financially, he said.
Fiat closed a plant at the end of 2011. Detroit-based GM, which has an alliance with Peugeot, is looking at shutting an Opel factory in Germany. Renault CEO Ghosn said today that carmakers are likely to shutter more plants.
Hyundai Motor Co. (005380), the fastest growing mass-market auto group in Europe, is holding off on major expansion in the region to focus on lifting profit and retaining customers, the Seoul-based company’s top executive in the region said.
The Paris show, the European car industry’s biggest showcase this year, opens to the public on Sept. 29 after two days of press and supplier events.
“What I’m seeing at the show is that they’re putting their best face on it, introducing new products and things like that,” said Michelle Krebs, a senior analyst at Edmunds.com, a U.S. consumer auto-pricing Website. “But they’re realistic, in that sales will get worse before it gets better.”