July 10 (Bloomberg) -- Manuel Cervantes used to enjoy taking friends to the beaches of southern Spain in his Seat Leon before the slowing economy cost him his job three years ago.
After sending out more than 200 applications without luck, the 27-year-old from Cartagena may switch to his bike or the bus to conserve cash. While he longs to replace his nine-year-old hatchback, the former bank salesman doesn’t have the money with the economy hobbled by Europe’s debt crisis.
High unemployment, especially among young people like Cervantes, has pushed many consumers out of the car market, making the slowdown stickier than if it were caused by shaky confidence. Sales in the European Union will probably fall to 12.2 million vehicles this year, the lowest level since 1995 and 21 percent below the 2007 peak, according to European auto industry group ACEA. A recovery to pre-crisis levels in the region isn’t likely until after the end of the decade, according to consulting company AlixPartners.
“The situation here is very difficult,” said Cervantes, who aspires to own an Audi or BMW but can’t afford to move out of his parents’ home. “Many of my friends are in the same situation. If it doesn’t improve soon or I don’t find a job by let’s say the end of the year, I will have to make more drastic decisions.”
In France, 22.5 percent of people under 25 are out of work, compared with 36 percent in Italy. In Spain, the rate for youth unemployment is 52 percent. With a generation of drivers lost, Europe-focused carmakers like Fiat SpA, PSA Peugeot Citroen and Renault SA face a struggle to stem losses in the region. Those three companies have lost more than 9 billion euros ($11.3 billion) in combined market value over the past 12 months.
“Young people in Greece or Spain can’t afford to buy a car,” said Peter Fuss, an auto analyst at Ernst & Young in Germany. “We all have to understand that sales volumes going forward will be in some way flat.”
With prospects for a recovery dim, carmakers are becoming more aggressive in their efforts to reduce costs. Peugeot plans to cut as much as 10 percent of its French workforce this year, lifting its previous job-cut target in response to falling sales, a French union official said.
Fiat, which cut investment in Europe by 500 million euros this year because of the dim prospects for a second-half recovery in demand, will extend temporary layoffs for about 5,000 workers at its headquarters in Turin, according to an Italian union official. Chief Executive Officer Sergio Marchionne said he may have to close another factory in Italy because of the plummeting sales in Europe.
The epicenter of the crisis is in the Mediterranean region, including Italy and France. Car sales in those so-called Club Med countries have dropped more than 15 percent through May, according to the ACEA trade group. In Greece, demand in the first five months of 2012 tumbled 41 percent, while deliveries in Spain, where sales are less than half their peak level, were down 7 percent. ACEA will release June figures next week.
“We are facing a de-motorization of Italy as a consequence of the crisis,” said Romano Valente, general manager of Italian auto industry group Unrae. “For the first time ever, the number of cars on the road in Italy is falling.”
Marcello Traversin is part of that trend. The 39-year-old switched to a second-hand bicycle for transportation in the coastal region near Venice, Italy, because he didn’t have money to pay for fuel and repairs for his Seat Ibiza from Volkswagen AG after losing his job earlier this year.
“I can’t afford a new car and all the related taxes since I don’t have a job,” said the former purchasing manager at a food supplement company. “I’ll keep riding my bike.”
The decline has led to calls for political intervention to boost sales and help the industry restructure. Fiat CEO Marchionne, who is also president of ACEA, has urged the European Union to support industry efforts to trim overcapacity.
AlixPartners estimates that 40 percent of the region’s auto factories aren’t using enough of their capacity to be profitable, with the lowest utilization rates in France, Italy and Spain.
Francisco Garcia Sanz, VW’s head of purchasing and president of the Spanish carmakers’ association, asked Spain’s Premier Mariano Rajoy for measures “to improve purchases” of new cars, even though “room for action of the government is limited” because of the crisis, he said last month in Madrid.
French Prime Minister Jean-Marc Ayrault pledged in a July 3 speech to parliament to come up with a plan by the end of the month to help the auto industry. More countries may feel pressure to follow suit.
The slump in sales in southern Europe “is spreading” to the rest of the region, Stefan Jacoby, chief executive officer of Volvo Car Corp., said in a June interview. “Uncertainty will be the new era globally” in the auto industry, he said.
Signs of a contagion are mounting. Sales in Germany, Europe’s biggest market, are forecast to decline to about 3.1 million vehicles this year from 3.17 million in 2011, the country’s auto association VDA said July 3.
“You see the numbers,” Carlos Tavares, Renault’s chief operating officer, said at an auto conference in Monaco last month. “There is a point in time when you should recognize that if it continues to go down, it will be a problem for everybody.”