Asian Auto Makers Cruise into Geneva
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Will 2006 be the year the Asian auto makers finally steal the buzz at the upcoming Geneva Auto Show, running from Mar. 2-12? Japanese and Korean cars are just beginning to gain traction in Europe. Old World car buyers have long snubbed their boring designs and cheap interiors, despite attractive sticker prices. But Asian executives took the lesson to heart. A new generation of Japanese and Korean models with more design pizzazz and refined interiors is now starting to power sales and boost market share.
Toyota's (TM) European sales climbed 4.9% last year in an otherwise flat European market, pushing its market share to 5.4%, double the level of 1996. Honda's (HMC) European sales jumped 10%, helping boost Japanese auto makers' overall share in Europe to 13.5%. Kia (KIMTF), meanwhile, saw European sales soar 40%, raising its share to 3.9%. The Asians' success in 2005 dented sales at Fiat, Ford of Europe (F), Peugeot and Renault. "Encroaching Asian competition is intensifying the fierce competition for market share," says Marie Bissinger, analyst at Standard & Poor's in Frankfurt.
Eager to claw back some of the lost ground, Europe's volume producers, including Volkswagen (VOLK), GM's (GM) Adam Opel subsidiary, Renault, PSA Peugeot Citroën and Fiat, are fighting back with edgier design, safety, and engineering advances, and a steady stream of innovative new niche models. One advantage they still wield: European car buyers, unlike Americans, are willing to pay more for eye-catching styling, safety advances, and high-quality interiors.
That's why Europe's auto makers are gradually repositioning some of their core products upmarket. One example: Peugeot's new 207 subcompact, to be unveiled in Geneva on Feb. 28. It's a slightly larger, tonier version of its predecessor (the 206) with six airbags and a stronger frame making it more crash-resistant. Peugeot still plans to continue manufacturing the hugely successful 206, while adding the upscale 207 to the lineup.
Analysts expect Peugeot to sell some 500,000 of the new 207 a year starting in 2007, ranking it among the top sellers in Europe, while the 206 continues to serve the market for less-pricey sub-compacts. The strategy of splitting the sub-compact segment into up market and down market models may help hold the Asians at bay.
Fiat's new Grande Punto, which is powering a sales revival at the beleaguered Italian auto maker, is also a bit bigger and better equipped than the predecessor Punto, which will continue to be built and sell for less. After losing European market share for several years running, Fiat has finally succeeded in breaking the slide, boosting sales by 26% in January over the same month in 2005, with the production of the Punto up 110% in January, year-on-year. "At this pace, Fiat should gain significant share," says Morgan Stanley analyst Adam Jonas.
The Europeans are also slashing costs and benchmarking themselves against industry leader Toyota in terms of production efficiency and quality, to avoid being undercut in the competition to offer the best value for money. PSA Peugeot Citroën stunned the European auto industry by entering into a joint venture with Toyota to produce three mini-car models together at a plant in the Czech Republic. The French-Japanese triplets stole the spotlight at last year's Geneva show.
But the pressure on the Europeans is bound to intensify as the Japanese and Koreans continue to mimic their approach to design and marketing. Hyundai and Kia -- which have set up design centers in Russelsheim, Germany, and Frankfurt -- are both showing concept cars at the Geneva show designed to rivet eyeballs and polish their image in Europe as contenders with hot ideas.
Kia's concept car, the Cee'd (pronounced "seed") is a five-door hatchback with a sporty, muscular styling that hints at the group's drive for greater European design savvy. It will be built in a new factory under construction in Slovakia. Hyundai's Genus concept car -- another Geneva highlight -- is a crossover between a coupe and a station wagon, a new niche BMW, Mercedes (DCX), Audi and others are also rushing into.
Even Toyota's luxury brand, Lexus, which is nearly invisible in Europe, is starting to make inroads. European sales of Lexus soared 125% in January to 3,121 cars, up from the same period last year. And the new Lexus LS 460 flagship which will make its European debut in Geneva and hits showrooms in September is clearly revving for attention, with its 380-horsepower V8 engine and reclining rear seats with foot rests and massage.
Still, no one seems to be worried that luxury brand-obsessed Europeans are about to ditch BMW, Mercedes, or Audi in droves for newcomer Lexus. "[Lexus] will find it harder to penetrate the higher-margin premium segment," says S&P's Bissinger. But let any one of them make a wrong turn, and Lexus will be right on their bumper.