Geneva Motor Show : Guess who's spooking the European Car Manufacturers ?
02-28-06, 06:37 AM
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Geneva Motor Show : Guess who's spooking the European Car Manufacturers ?
As Japanese and Korean sales grow, everyone else is left to fight over the scraps
Neil Winton :
GENEVA, Switzerland - European car manufacturers are about to whip the dustcovers off their latest creations at the annual Geneva Motor Show, and although they might not yet be on the verge of bankruptcy like General Motors and Ford in the U.S., the industry here is fighting a desperate, uphill battle to fend off the same enemy - competition from Asia.
European car sales have stagnated in recent years - moving up about 1 percent one year, then down about the same the next. Investment bankers like Sabine Blumel, European analyst for Banca IMI of Italy, expect more of the same in 2006 - "growth” of not much more than about 1 per cent.
But this moribund market masks a burgeoning threat. Asian sales have grown steadily, from a 12 percent market share in 2001 to over 17 percent last year.
“It's getting tighter and tighter for Europeans fighting over a smaller market space,” said London-based Blumel.
In 2005, Hyundai sold just over 300,000 cars in Europe and its Kia subsidiary just under 250,000. Hyundai has said it wants to more than double sales to 800,000 by 2010. Kia wants to double sales to 500,000 by 2008.
Undermining European Profits
“A flat Western European car market, with domestic demand languishing, growing competition from Asian manufacturers and ongoing high raw material prices continue to undermine the European car manufacturers" earnings potential and profitability. The inroads by Asian manufacturers are keeping the downwards trend in transaction prices intact, thus putting further competitive pressures on the indigenous European manufacturers, particularly in the non-premium segments,” Blumel said.
Hyundai and Kia’s products have morphed from boring, cheap-and-nasty little econo-boxes into sophisticated, attractive models with a cast-iron reputation for reliability and copper-bottomed performance guarantees.
The bottom line is that while Asian sales have accelerated, the Europeans are left to fight for scraps in a dwindling market. Profits are being squeezed. This has set off a chain reaction of restructuring, with the companies knowing that the devil will take the hindmost.
Bloated workforces
The Europeans are caught between a rock and a hard place because investment in new products has lagged and must be stepped up. At the same time, huge sums must be found to modernise manufacturing and pay-off bloated workforces and shut under-used factories.
Volkswagen, Europe’s biggest car maker, has got the message and is struggling to convince its unions that job cuts and restructuring are required if car manufacturing in Germany is to have a future. DaimlerChrysler’s new boss Dieter Zetsche, recently the Detroit-based head of Chrysler, has swung the axe and cut headcount at Mercedes in Germany. GM’s Opel/Vauxhall and Ford Europe perennially flirt with red ink. Renault and Peugeot-Citroen of France recently warned investors that profits are under pressure. Only perpetual bridesmaid Fiat has a good news story to tell, with its coffers awash with the more than $1.5 billion it persuaded General Motors to part with to exit the ill-fated U.S./Italian alliance. Fiat’s new Grande Punto city car is also rushing out of showrooms across Europe.
Where are the new big sellers?
But when the Geneva show opens its doors to the public on March 2, the crowds would be hard pressed to guess that the Europeans are in trouble when they see all the gleaming new products, and hear the unashamed hyperbole from the bosses. This year, there aren’t many big-selling, mainstream models on show, but there are fabulous new products in abundance. Alfa Romeo is showing off its new 159 Sportwagon and Spider roadster. Volvo is introducing its new S80 flagship sedan. VW shows the concept version of its “baby Touareg” - a Golf based SUV provisionally named Concept A. The Ford S-MAX MPV is the first vehicle to use the technology of the next-generation Mondeo. BMW doesn’t have a new mainstream model to show off but it unveiled its first turbo-charged direct-injection petrol engine, based on the 3.0 litre six-cylinder motor. Mercedes reintroduced its direct-injection petrol engine.
The Americans are putting on a show too. Chrysler’s Dodge is showing off its weird looking little Hornet concept, as well as the Caliber, which made its debut at the Detroit show in January. Dodge has big plans in Europe, hoping for annual sales of 80,000 in 2009, from virtually nothing in 2004. Chrysler is showcasing its gargantuan Imperial, while it has high hopes for the huge 300C, which has a cult following among lavishly paid English Premiership soccer players. Cadillac is also trying to sell its massive Escalade SUV, although it’s hard to see why Europeans would forsake the big Mercedes G class or new Audi Q7.
Asians have diesels, too
But it is the Japanese and Koreans who pose the biggest threat. Their cars not only look good and are tough, they often now boast state-of-the-art diesel engines, which was the last remaining ace card of the Europeans, who buy about one diesel for every gasoline engine sold.
“European automakers face a continuing squeeze on profits in 2006, owing to a flat market and increasing competition,” said Standard & Poors Rating Services in a report called “Puffing for Profits: Europe’s Automakers Face an Uphill Chug in 2006”.
“Stalling new-car registrations in most national markets and encroaching Asian competitors are intensifying the fierce competition for market share,” said S&P analyst Maria Bissinger in Frankfurt, Germany.
“Continuing high raw-material prices will add to profitability pressures, and the relative weakness of the U.S. dollar against the euro will have a negative currency impact on some manufacturers exporting to the U.S. (like BMW, Mercedes and VW’s Audi),” Bissinger said.
Free market
Investment banker Morgan Stanley points out that the traditional barriers to competition in Europe with the elimination of the Block Exemption by the European Union are shaking up the business model. The co-called Block Exemption allowed many monopolistic and protectionists practices, but they were outlawed a couple of years ago
“The Japanese and Koreans are stepping on the gas with investment in product, capacity and technology. GM and Ford are fighting to re-invent themselves, but while they struggle, the Japanese and Koreans are in a position to unleash their growing manufacturing scale advantages and liquidity positions to win juicy chunks of European market share,” Morgan Stanley said.
Capital spending by Europeans is at a 10-year low, according to Morgan Stanley.
Spending needs to rise
“We argue that spending must increase substantially to maintain competitive positions versus the Asian players. In addition, cash-out for the sector’s many restructuring plans will require over €10 billion of spending in the near term,” the bank said.
S&P said that the tough conditions in Europe underline the profit performance gap between general and premium manufacturers like BMW, which are likely to retain their above average profit margins.
“The profitability of volume manufacturers on the other hand is increasingly coming under pressure, aggravated by the scarcity of new, large-volume model launches planned in 2006 compared with previous years,” S&P said.
“Mediocre profitability is likely to remain a feature of the European auto market in 2006 and beyond, but companies that can successfully use profit-enhancement programmes and product proliferation to keep pace with the competition, will prevent their wheels from becoming stuck in the mud,” said S&P’s Bissinger.
source : detnews
Neil Winton :
GENEVA, Switzerland - European car manufacturers are about to whip the dustcovers off their latest creations at the annual Geneva Motor Show, and although they might not yet be on the verge of bankruptcy like General Motors and Ford in the U.S., the industry here is fighting a desperate, uphill battle to fend off the same enemy - competition from Asia.
European car sales have stagnated in recent years - moving up about 1 percent one year, then down about the same the next. Investment bankers like Sabine Blumel, European analyst for Banca IMI of Italy, expect more of the same in 2006 - "growth” of not much more than about 1 per cent.
But this moribund market masks a burgeoning threat. Asian sales have grown steadily, from a 12 percent market share in 2001 to over 17 percent last year.
“It's getting tighter and tighter for Europeans fighting over a smaller market space,” said London-based Blumel.
In 2005, Hyundai sold just over 300,000 cars in Europe and its Kia subsidiary just under 250,000. Hyundai has said it wants to more than double sales to 800,000 by 2010. Kia wants to double sales to 500,000 by 2008.
Undermining European Profits
“A flat Western European car market, with domestic demand languishing, growing competition from Asian manufacturers and ongoing high raw material prices continue to undermine the European car manufacturers" earnings potential and profitability. The inroads by Asian manufacturers are keeping the downwards trend in transaction prices intact, thus putting further competitive pressures on the indigenous European manufacturers, particularly in the non-premium segments,” Blumel said.
Hyundai and Kia’s products have morphed from boring, cheap-and-nasty little econo-boxes into sophisticated, attractive models with a cast-iron reputation for reliability and copper-bottomed performance guarantees.
The bottom line is that while Asian sales have accelerated, the Europeans are left to fight for scraps in a dwindling market. Profits are being squeezed. This has set off a chain reaction of restructuring, with the companies knowing that the devil will take the hindmost.
Bloated workforces
The Europeans are caught between a rock and a hard place because investment in new products has lagged and must be stepped up. At the same time, huge sums must be found to modernise manufacturing and pay-off bloated workforces and shut under-used factories.
Volkswagen, Europe’s biggest car maker, has got the message and is struggling to convince its unions that job cuts and restructuring are required if car manufacturing in Germany is to have a future. DaimlerChrysler’s new boss Dieter Zetsche, recently the Detroit-based head of Chrysler, has swung the axe and cut headcount at Mercedes in Germany. GM’s Opel/Vauxhall and Ford Europe perennially flirt with red ink. Renault and Peugeot-Citroen of France recently warned investors that profits are under pressure. Only perpetual bridesmaid Fiat has a good news story to tell, with its coffers awash with the more than $1.5 billion it persuaded General Motors to part with to exit the ill-fated U.S./Italian alliance. Fiat’s new Grande Punto city car is also rushing out of showrooms across Europe.
Where are the new big sellers?
But when the Geneva show opens its doors to the public on March 2, the crowds would be hard pressed to guess that the Europeans are in trouble when they see all the gleaming new products, and hear the unashamed hyperbole from the bosses. This year, there aren’t many big-selling, mainstream models on show, but there are fabulous new products in abundance. Alfa Romeo is showing off its new 159 Sportwagon and Spider roadster. Volvo is introducing its new S80 flagship sedan. VW shows the concept version of its “baby Touareg” - a Golf based SUV provisionally named Concept A. The Ford S-MAX MPV is the first vehicle to use the technology of the next-generation Mondeo. BMW doesn’t have a new mainstream model to show off but it unveiled its first turbo-charged direct-injection petrol engine, based on the 3.0 litre six-cylinder motor. Mercedes reintroduced its direct-injection petrol engine.
The Americans are putting on a show too. Chrysler’s Dodge is showing off its weird looking little Hornet concept, as well as the Caliber, which made its debut at the Detroit show in January. Dodge has big plans in Europe, hoping for annual sales of 80,000 in 2009, from virtually nothing in 2004. Chrysler is showcasing its gargantuan Imperial, while it has high hopes for the huge 300C, which has a cult following among lavishly paid English Premiership soccer players. Cadillac is also trying to sell its massive Escalade SUV, although it’s hard to see why Europeans would forsake the big Mercedes G class or new Audi Q7.
Asians have diesels, too
But it is the Japanese and Koreans who pose the biggest threat. Their cars not only look good and are tough, they often now boast state-of-the-art diesel engines, which was the last remaining ace card of the Europeans, who buy about one diesel for every gasoline engine sold.
“European automakers face a continuing squeeze on profits in 2006, owing to a flat market and increasing competition,” said Standard & Poors Rating Services in a report called “Puffing for Profits: Europe’s Automakers Face an Uphill Chug in 2006”.
“Stalling new-car registrations in most national markets and encroaching Asian competitors are intensifying the fierce competition for market share,” said S&P analyst Maria Bissinger in Frankfurt, Germany.
“Continuing high raw-material prices will add to profitability pressures, and the relative weakness of the U.S. dollar against the euro will have a negative currency impact on some manufacturers exporting to the U.S. (like BMW, Mercedes and VW’s Audi),” Bissinger said.
Free market
Investment banker Morgan Stanley points out that the traditional barriers to competition in Europe with the elimination of the Block Exemption by the European Union are shaking up the business model. The co-called Block Exemption allowed many monopolistic and protectionists practices, but they were outlawed a couple of years ago
“The Japanese and Koreans are stepping on the gas with investment in product, capacity and technology. GM and Ford are fighting to re-invent themselves, but while they struggle, the Japanese and Koreans are in a position to unleash their growing manufacturing scale advantages and liquidity positions to win juicy chunks of European market share,” Morgan Stanley said.
Capital spending by Europeans is at a 10-year low, according to Morgan Stanley.
Spending needs to rise
“We argue that spending must increase substantially to maintain competitive positions versus the Asian players. In addition, cash-out for the sector’s many restructuring plans will require over €10 billion of spending in the near term,” the bank said.
S&P said that the tough conditions in Europe underline the profit performance gap between general and premium manufacturers like BMW, which are likely to retain their above average profit margins.
“The profitability of volume manufacturers on the other hand is increasingly coming under pressure, aggravated by the scarcity of new, large-volume model launches planned in 2006 compared with previous years,” S&P said.
“Mediocre profitability is likely to remain a feature of the European auto market in 2006 and beyond, but companies that can successfully use profit-enhancement programmes and product proliferation to keep pace with the competition, will prevent their wheels from becoming stuck in the mud,” said S&P’s Bissinger.
source : detnews
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