February 5, 2013. Copyright 2012, Graphic News. All rights reserved

European car makers' huge losses point to imminent shakeout
By Neil Winton

LONDON, February 5, Graphic News:  Mass car manufacturers are facing a financial crisis which threatens their survival as sales in Western Europe close in on 20-year lows, battered down by the economic recession.

Mass car makers that aren't German, that is.

German manufacturers like Volkswagen, Europe's biggest, took painful decisions early this century to slash costs and invest in new, highly efficient factories, and are now reaping the benefits. Sales of premium BMWs, Mercedes and Porsches are holding up. But the scary scenario for the non-German domiciled car makers like Peugeot-Citroen and Renault of France, Fiat of Italy, and Ford and General Motors Europe is that not only are they haemorrhaging life-threatening amounts of red ink, the prospects for recovery aren't good either.

According to investment banker Morgan Stanley, Western Europe may have reached the saturation point of car usage and ownership. Even when the overall economy improves, that might not lead to a rally in sales. The number of driving-age Europeans is declining, and those remaining are driving less. Modern cars are more reliable so replacement can be delayed. The young are said to be less excited about owning cars, and are going for car-sharing and short-term rentals.

The non-Germans are also finding life difficult because of the competition from Hyundai and Kia of South Korea, which have transformed themselves from cheap and cheerful bargain basement suppliers to makers of desirable and stylish cars still priced to go, and retaining huge reliability guarantees.

Losses are mounting. Vic Heylen, director of the Flanders Centre for Automotive Research, near Antwerp, Belgium, estimates non-German mass car maker losses for 2012 will amount to between 8-9 billion euros. Ford Europe has already reported a 2012 loss of $1.75 billion (1.3 billion euros) and expects to lose more in 2013. Fiat lost close to 750 million euros in Europe and expects about the same this year. In mid-February GM Europe's Opel-Vauxhall will report losses reminiscent of its Ford compatriot. Worst of the lot will be Peugeot-Citroen.

A similar financial mess in the U.S. was bailed out by massive government intervention. In Britain, the industry was saved by Japanese and Indian takeovers.

Heylen doesn't expect any intervention from the European Union, despite pleas for financial help from Fiat CEO Sergio Marchionne, who also heads up the European Auto Manufacturers Association.

"The European Commission is in a complete state of denial. They keep insisting that salvation lies with the production of small, fuel-efficient vehicles, in spite of the fact that makers of these vehicles are facing extinction, while the makers of less fuel-efficient vehicles flourish. Last month, the Commission published a new 10.5 billion-euro plan for installation of nearly one million charging stations for electric vehicles which nobody seems willing to buy," Heylen said.

Europe's ailing car industry has been on the financial edge for years but massive restructuring has been delayed, not least by national governments' unwillingness to countenance the short-term political cost of job losses. The financial crises means this can be put off no longer.

There are some colourful theories on what may happen next. VW might buy Alfa Romeo and Ferrari from Fiat. GM could finally lose patience with Opel-Vauxhall, which has lost $16 billion over the last 12 years. Renault, owned 15 percent by France, might merge with Peugeot-Citroen.

The reality is likely to be more of the same, as the weaker elements slip towards failure, and governments veto action which might restore overall health for fear of the political consequences.
/ENDS