Fiat-VW Dispute Highlights Tensions on 17-Year-Low Sales

VW CEO Martin Winterkorn and Fiat CEO Sergio Marchionne
Volkswagen AG CEO Martin Winterkorn, left, and Fiat SpA Chief Executive Officer Sergio Marchionne, shake hands following a meeting at the Fiat SpA stand, on at the Paris Motor Show in Paris. Photographer: Jason Alden/Bloomberg

Fiat SpA Chief Executive Officer Sergio Marchionne and Volkswagen AG CEO Martin Winterkorn resolved a dispute that threatened to paralyze Europe’s main car lobby group as the region’s market sinks to a 17-year low.

The executives emerged from a meeting of the ACEA industry organization at the Paris Motor Show today shaking hands and saying Marchionne will remain its head, following threats by both Fiat and VW in recent months to quit the trade group.

Tensions are rising among manufacturers as European car sales fall to the lowest level since 1995 and executives blame one another for deep discounts that are generating losses. Since taking the ACEA’s two-year rotating presidency in January, Marchionne, 60, has called for cooperation among Europe’s carmakers on cutting production in response to the contraction.

“It’s basically a spat between two alpha animals,” Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt, said in a phone interview. “The tense situation on the European market adds to the conflict.”

Auto executives at the Paris show have said demand in Europe is unlikely to recover before 2014. The market’s decline would be even steeper without a practice known as “self registrations,” in which dealers sell cars to themselves without having customer orders, according to Roelant de Waard, head of European sales at Ford Motor Co.

Overcapacity Unresolved

Winterkorn told journalists today after the ACEA meeting that he and Marchionne have been “good friends” for years and have “settled things.”

Marchionne said ACEA members decided today to address overcapacity on their own, though the automotive market is “not pleasant,” and the industry must still address excess production.

“We keep on fighting with the same competitors, we all drink from the same trough and resources are limited,” he said.

The European car market has yet to bottom out and will not rebound to 2006 levels for another three to five years, Renault SA Chief Operating Officer Carlos Tavares said in an interview. Renault is in negotiations with labor leaders to increase the competitiveness of French plants, he said.

“We’re in a middle of a storm and it goes on,” Tavares said in an interview today. “That’s why we’ve started talks with unions to find a menu of solutions.”

Volkswagen Edge

Volkswagen, bolstered by sales in China and premium marques including Audi, is gaining market share in Europe by offering discounts and financing packages that its competitors in France and Italy can’t match. VW Chief Financial Officer Hans Dieter Poetsch said at the Paris show this week that “especially carmakers in southern Europe” may have trouble surviving the crisis without government aid.

Stephan Gruehsem, VW’s chief spokesman, said in July that Marchionne was not qualified to head the ACEA and threatened to quit the organization after a New York Times article suggested that Marchionne blamed VW’s pricing strategy for creating a “bloodbath” in Europe.

General Motors Co. said yesterday that “nobody” can make money in Europe with Turin, Italy-based Fiat and Paris-based PSA Peugeot Citroen trying to win customers with discounts of as much as 30 percent.

Peugeot lost about 350 euros ($450) per car during the first half in Europe, while some competitors lost 500 euros to 600 euros per vehicle, “an unsustainable situation in the long run,” CEO Philippe Varin said yesterday. The market is “a very aggressive environment,” with self-registrations becoming widespread and accounting for as much as 30 percent of car sales in Germany this year, Ford’s De Waard said yesterday in an interview.

Under Pressure

“All these guys are under pressure in Europe and with earnings,” Marc-Rene Tonn, a Hamburg-based Warburg Research analyst who recommends buying VW shares, said by phone. “VW is gaining market share in Europe and worldwide. When you see your opportunities to fight back as rather limited, you are perhaps a little more aggressive than you would be in different times.”

Fiat closed a plant on the Italian island of Sicily in late 2011, and Peugeot and GM’s Opel unit have outlined plans to shutter factories in France and Germany in coming years.

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