General Motors Co. said Europe’s car industry will remain unprofitable at current vehicle pricing levels, while Volkswagen AG said some competitors are at risk of going out of business without state aid.
Competitors Fiat SpA and PSA Peugeot Citroen are producing “very scary numbers” with discounts of as much as 30 percent off gross sale prices, Susan Docherty, who runs European operations for GM’s Chevrolet unit, told reporters today at the Paris Motor Show. “Nobody can make money in Europe when you’ve got incentives at that level.”
Demand has plunged so much that deliveries continue to tumble, even with such large discounts. Although discounting in Germany is at the highest in more than a year, according to industry publication Autohaus PulsSchlag, car sales across Europe may fall to a 17-year low, the region’s main auto- manufacturing trade group has predicted.
“The biggest problem for the industry is the complete meltdown of pricing discipline,” Erich Hauser, a London-based analyst at Credit Suisse, said by phone. “The two guys with the most stretched balance sheets are clearly Fiat and Peugeot.”
Fiat, forecasting a loss of about 700 million euros ($900 million) in the region for 2012, isn’t introducing any new models at the Paris event, Europe’s biggest showcase for carmakers this year.
GM, which owns the Opel and Vauxhall brands in Europe, has racked up $16.8 billion in losses in the region since 1999. The business posted a first-half loss before interest and taxes of $617 million, and wrote down $590 million of goodwill. Dearborn, Michigan-based Ford Motor Co. (F) is projecting a loss of more than $1 billion in Europe this year.
Peugeot, Europe’s second-biggest carmaker after VW, has been burning through 200 million euros in cash a month as the market contracts, a figure that Chief Executive Officer Philippe Varin said today may fall by 50 percent in 2013. Paris-based Peugeot plans to cut jobs and close an auto plant, amid resistance from the French government, and has been selling assets to cut debt.
“It is unclear if all carmakers will survive without governmental help,” VW Chief Financial Officer Hans Dieter Poetsch told reporters yesterday. “Especially carmakers in southern Europe that produce small cars will be affected.”
Volkswagen fell as much as 2.3 percent to 143.05 euros, the lowest intraday price since Sept. 12, and was trading down 2.2 percent at 3:01 p.m. in Frankfurt. Fiat declined 1.9 percent to 4.24 euros in Milan. Peugeot rose 0.3 percent to 6.05 euros in Paris after Varin said the French carmaker’s cash burn will end in 2014 and that it will reach savings targets for 2015.
Daimler AG (DAI), the world’s third-largest luxury-vehicle maker, said Sept. 20 that earnings at its car division will drop in 2012 as the European market decline hurts second-half business, and that the Stuttgart, Germany-based company is undertaking an efficiency program in response.
CEO Dieter Zetsche declined at a Paris show press event today to outline details of the program because Daimler is still working out measures. Efficiency and sales growth should be seen as “two sides of the same coin,” he said.
Auto dealers in Germany, the region’s biggest economy, offered discounts on average of 12.1 percent off the sticker price last month, according to Autohaus PulsSchlag.
The ACEA trade group for carmakers in Europe is forecasting that car sales in the region this year will be at the lowest level since 1995. European auto deliveries may get worse before improving, Poetsch said last night, adding that the current market has never been more difficult to assess.
GM’s Docherty said the deteriorating environment is being driven by government austerity measures and declining consumer confidence.
“In the past, countries have been able to stimulate the industry through scrappage programs,” she said. “The countries are in such a state that they don’t have the ability to pull those levers. We’re not seeing any quick fixes to this.”
Industry deliveries in western Europe may decline to 15.1 million or 15.2 million, Docherty said. Sales may drop to the “neighborhood” of 14.3 million to 14.5 million vehicle next year, she said.
Peugeot is eliminating 8,000 jobs and shutting a factory in the Paris suburb of Aulnay. The measures prompted French Industry Minister Arnaud Montebourg in July to offer loans and tax breaks for automotive manufacturers and incentives for drivers to buy hybrid or electric cars. French President Francois Hollande called a week ago for government officials and Peugeot labor and management leaders to meet in October to discuss the workforce reductions at Aulnay.
The French carmaker is forecasting an 8 percent contraction in Europe’s car market in 2012, with industrywide deliveries in France dropping 12 percent, and no improvement is likely next year, Varin told journalists today at the show. Peugeot will be cash positive by the end of 2014 and will meet a 1.5 billion- euro annual cost-savings goal the following year, he said in a Bloomberg Television interview.
Fiat CEO Sergio Marchionne, who currently heads the ACEA, has been urging his European counterparts to come up with a comprehensive plan to cut overcapacity throughout the region, a move resisted by VW and the other German carmakers. Turin, Italy-based Fiat has cut investment spending by 500 million euros to preserve cash.
Fiat closed a plant at the end of 2011. Detroit-based GM, which has an alliance with Peugeot, is looking at shutting an Opel factory in Germany. Seoul-based Hyundai Motor Co., the fastest growing mass-market auto group in Europe, is holding off on major expansion in the region to focus on lifting profit and retaining customers, its top executive in the region said.
Marchionne said today at the Paris show that Fiat, which is buying U.S. manufacturer Chrysler Group LLC, hasn’t been able to find a partner in Italy because of labor conditions.
“Without Chrysler, we would have gone through hell” because of losses in Europe, Marchionne told journalists.
Italy’s car plants are running at 50 percent capacity, Marchionne said. At the same time, Germany should be the first country where auto factories are shut down, he said.
Fiat isn’t seeking aid from Italy or the European Union, Marchionne told journalists.