Status Takes Back Seat as Crisis Favors Dacia Over Ford
Wolfgang Hirschauer, a toolmaker from the Bavarian ski town of Garmisch-Partenkirchen, this year traded in his Renault (RNO) Espace minivan for a Dacia Logan, a budget wagon that retails for a quarter the price.
“I was looking for a car for transportation only,” said the 58-year-old father of three. “I liked the low cost and the basic features,” including easy-to-fix mechanics, which made up for the lack of frills like electric windows.
Hirschauer’s choice is part of a broad back-to-basics thriftiness in crisis-strapped Europe. While austerity measures have helped accelerate the trend, the rise of budget vehicles reflects a deeper shift in European attitudes as cars lose their importance as a status symbol.
“Automobiles are not a show-off item anymore,” said Arnaud Deboeuf, a director at Renault SA, which owns Dacia. “People prefer investing in iPads or smartphones over cars.”
After acquiring Dacia in 1998, Renault intended to use the Romanian automaker to attract first-time buyers in Eastern Europe and other emerging markets. Following the Logan’s introduction in 2004, that plan changed as western Europeans began buying the cars in the East and bringing them back home.
Backed by a no-discount policy, Dacia’s advance is helping Renault weather Europe’s downturn by providing stable profit margins as the flagship brand comes under pressure, said Erich Hauser, an analyst with Credit Suisse in London. Renault posted an operating profit margin of 2.5 percent in the first half even as mass-market rivals struggle with losses in Europe.
Sales of low-cost brands such as Dacia, Volkswagen AG (VOW)’s Skoda, and Hyundai Motor Co. (005380)’s Kia have climbed 16 percent since car sales in Europe peaked in 2007. Over the same period, industrywide deliveries have plunged 21 percent, according to researcher IHS Automotive.
Budget brands will account for 8.3 percent of the market this year, compared with 5.7 percent five years ago as they nab customers from mid-market nameplates like PSA Peugeot Citroen (UG), Fiat SpA (F) and General Motors Co. (GM)’s Opel.
“The middle class in Europe is shrinking due to the sovereign-debt crisis, reducing demand for cars in the mid-priced segment,” said Albrecht Denninghoff, analyst at Silvia Quandt Research in Frankfurt. “There are too many carmakers competing in the segment, where capacity needs to be reduced.”
To diminish the risk of getting squeezed out of the market, Volkswagen and Ford Motor Co. (F) are mulling new budget models.
VW is considering a no-frills line that would harken back to basic vehicles from the 60s and 70s, before cars were ubiquitous in Europe and families pulled together to buy one.
It was a time when “grandma helped pay, so she got a seat in the back,” Chief Executive Officer Martin Winterkorn said at the Sao Paulo Motor Show last month. The new line could be a similar all-round vehicle for “people who want to transport grandpa, grandma and the kids around.”
The cars would be about 4 meters (13 feet) long -- roughly the size of the Golf hatchback -- and cost less than 8,000 euros, at least 20 percent cheaper than VW’s current entry-level Up! city car, he said.
Ford CEO Alan Mulally said his company is “evaluating a budget car” that might be sold under a separate nameplate. “I am just not sure if we can do that with our Ford brand,” Mulally said at a Nov. 7 industry conference in Berlin. Such a move could help the U.S. automaker shore up its flagging European operations as it prepares to shut 3 of its 13 factories in the region by 2014.
While Ford and VW deliberate, Dacia is revamping its lineup. It introduced new versions of the Sandero hatchback and the Logan in September. The cars boast more rugged frames, side airbags and better sound-proofing. The brand, which promotes its cars as “function over frivolity,” expanded to five vehicles by adding the Lodgy and Dokker vans this year.
The primary impetus for the shift is that incomes haven’t grown as fast as the cost of transport. A new car cost an average German worker 16 months’ pay last year, versus 9.4 months in 1980, according to the Center for Automotive Research at the University of Duisburg-Essen.
“Cars are now too expensive for many people, a fact that many automakers have ignored,” said Juergen Pieper, analyst at Bankhaus Metzler in Frankfurt.
VW’s Skoda, which attempted to shift upscale with the Superb sedan in 2008, is returning to its roots as a value brand. The Czech carmaker, whose motto is “simply clever,” started selling the new Rapid sedan last month at a base price of 13,990 euros, undercutting the similarly sized Renault Fluence by 7,500 euros and the Ford Mondeo by 9,960 euros.
‘Something That Moves’
Still, Skoda can’t compete with Dacia on price. The Renault brand’s cheapest model, the Sandero, starts at 6,790 euros, thanks to its reliance on cheap labor in Romania and Morocco. Skoda claims its quality and features justify the premium, even in this price-sensitive segment.
Being cheap hasn’t turned off customers like Tomas Luenser. The 37-year-old industrial mechanic from Berlin swapped his VW Passat (PSAT) for a Dacia Duster sport-utility vehicle in October 2010 because of the price and the ample space for his kids. Image wasn’t part of the equation.
“Earlier it was important to drive a VW and show that you had something, but now we just want a vehicle that moves,” said the father of three. “I’ve noticed that Dacia owners spend a lot less time washing their cars. It’s about the utility.”
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