Who'll Buy These Cars?

Three million Italians poured into the country's auto showrooms during the Sept. 15 weekend to get their first look at Fiat's newest cars, the Bravo and Brava midsize models. "The turnout was incredible," says Andrea Colaneri, manager of Mondo Auto, a Rome dealer. "We're finally seeing a well-heeled crowd of yuppies and families again."

But now, the big challenge--in Italy and elsewhere in Europe--is to turn gawkers into buyers. As the car-buying season kicks off, with a record 20 new models hitting the market, industry executives are blanching at estimates that sales in Western Europe will increase by only 1% this year, to 12 million vehicles. Manufacturers had originally hoped for gains of up to 4%. "We are still suffering from the effects of the recession," says Graham Dymott, a spokesman at Britain's Society of Motor Manufacturers & Traders. "Business has recovered its confidence, but the private purchaser hasn't."

The carmakers will have to hone their marketing skills to turn these timid souls into customers. If they don't, the prospects are grim. Profits, recovering only slowly from the 1993 recession, could be hammered if the market doesn't pick up. The industry is already facing overcapacity of 2 million vehicles a year. Nervous executives at the recent Frankfurt Auto Show were wondering if a shakeout would force mergers upon Europe's smaller players.

CROWDED TRACK. It certainly doesn't help that so many new models are having to jockey for position in this anemic market. Renault's Megane, a replacement for its R19, will be competing head-on with the Bravo and a new Rover 400 in the lower-priced midsize segment, which accounts for nearly one-third of European sales. General Motors Corp. is launching a new full-midsize Vectra model from its German Opel and British Vauxhall units. Adding to the stampede in the full-midsize category, France's Peugeot has a new 406 and Sweden's Volvo an S4 model. South Korea's Daewoo Corp. is also planning an aggressive push into the market.

With no sustained sales boom in sight, it's sinking in among Europe's carmakers that they have to imitate their U.S. rivals by wooing customers with new features and innovative pricing. "The days are past for manufacturers to believe they will be [just] order-takers," says Rod T.W. Ramsay, marketing director at Rover Group Ltd. Adds Karl E. Ludvigsen, chairman of London auto consultancy Ludvigsen Associates Ltd.: "It's a buyer's market now."

That means being acutely conscious of the tight constraints on buyers' budgets. Spending power is being drained by governments eager to slash huge budget deficits. France has already slapped two percentage points onto its value-added tax, raising it to a standard of 20.6% of the price of goods. French levies on gasoline are going up as well. Germans are paying a 7.5% surcharge on their tax bills, while the British Treasury is mopping up $26 billion more in taxes from its citizens than it did two years ago.

The easy way to appeal to pinched buyers would be to cut prices. Not surprisingly, Europe's carmakers want to avoid a sticker-price war if possible. Renault in particular wants to protect its margins, as the French government prepares to sell its 51% stake in the company in a weak stock market.

So marketers are trying to deliver value in other ways. A key strategy is to give a lot more car for the money. Fiat's Bravo, for instance, will be offered in export markets with such goodies as a built-in stereo, central locking, a fire-prevention system, driver's-side air bag, and electric windows as standard features--features once restricted to up-market models. And customers love it. More than price discounts, says Michel Kekus, salesman at a Peugeot dealership in Paris, "customers are looking for lots of options included in the price."

For drivers still worried about affordability, leasing is quickly gaining ground, much as it has in the U.S. Ingvar M. Sviggum, director of sales and marketing at Ford Werke, for example, says he is pushing leases extremely hard to try to get a leg up on competitors. This year, 30% of Ford Motor Co. vehicles in Germany were leased, up from just 10% last year. Ford advertising is focusing on the monthly payments, which are lower if you lease than if you buy.

SHEEP AND GOATS. European makers are also racing to deliver the hottest-selling products. That's a sea change from the past, when manufacturers measured the appeal of new models by the length of waiting lists. Says Mercedes-Benz CEO Helmut Werner: "Clients [nowadays] aren't willing to wait months for their cars." It's just as well the Europeans have heard the wake-up call. Honda Motor Co. CEO Nabuhiko Kawamoto bragged in Frankfurt that he's aiming to slash delivery time from factory to dealer from one month to one week for models such as the newly made-over Honda Civic.

Adding to the pressure in this crowded market is that quality and performance don't separate the sheep from the goats in the way they used to. In those respects, says Peter Davis, Fiat's director of design in Turin, "all the [new] cars are great cars."

To differentiate itself, Fiat is betting on Italian design and styling flair. Others figure that superior service in the showroom and after the sale could be winners. GM has already put more than 10,000 of its European employees and dealers through a program modeled on its Saturn unit's successful training scheme in America, which stresses low-pressure selling tactics.

Whatever strategies the carmakers adopt, a robust European market of 15 million units a year, once assumed to be just around the corner, now looks farther off than ever. But there could be a silver lining: Companies that survive profitably in the tough European markets have a good chance of emerging as the global competitors they aspire to be.

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