As Profits Surge, Europe's Carmakers Rev Up Global Ambitions

Europe's automakers will face increasing competition from rivals in China and in response are expanding aggressively, buying foreign automakers, acquiring technology and setting up factories and dealer networks across Asia, the Middle East and Eastern Eu

Two years after a world economic downturn all but wiped them out, European carmakers have bounced back to the spotlight with Volkswagen aiming to be the industry leader and Fiat carving out a global brand for itself.

Unfettered of their obligations to repay state aid and riding out the expiry of government "cash-for-clunkers" schemes that initially plunged their revenue, carmakers this week gave rosy outlooks for the rest of fiscal 2011.

Germany's Volkswagen reported a three-fold profit leap in the three months from January through March to 1.71 billion euros (US$2.5 billion), selling two million cars, a new milestone for Europe's biggest automaker. The comparable figure for 2010 was 473 million euros.

Finance director Dieter Poetsch said a cash pile worth 19.6 billion euros gave the group impetus to overtake General Motors and Toyota and become the leading global car maker by 2018.

With respect to 2011, Chairman Martin Winterkorn, who has boosted VW's fortunes since he took over in 2007 said: "Volkswagen shifted into the fast lane in 2010 and thats exactly where we intend to stay this year."

Fellow carmaker Daimler also posted stellar first-quarter net profit thanks to burgeoning demand in China, where an increasingly affluent middle class snapped up its luxury Mercedes-Benz cars and its heavy trucks met construction demands. The automaker said net profit jumped to 1.18 billion euros (US$1.75 billion) in the first quarter, from 612 million euros in the same period of 2010.

In one of the most noteworthy shake-ups in the sector, Italy's Fiat took a step closer to joining the ranks of the world's top automakers with a $1.3 billion deal to boost its stake in U.S. unit Chrysler to 46%.

The carmaker, known more for its small city cars largely targeting the domestic market and niche-market Ferrari and Maserati sports car brands, has not shied away from displaying its ambitions under its chief Sergio Marchionne.

Fiat took over management of the iconic U.S. company after it emerged from bankruptcy in 2009 and currently owns a 30% stake. Chrysler suffered from an implosion of auto sales in the United States. Fiat gave Chrysler access to much-needed small-car technology and Chrysler offered dealership networks which the Italian manufacturer lacked, notably in the United States.

Marchionne has also in recent months suggested moving Fiat's headquarters from Turin to Detroit, drawing the ire of Italy's politicians and labor unions.

Although carmakers are changing gears into the fast lane, speed bumps remain ahead, including potential shortages of critical components after the devastating earthquake and tsunami in March hit Japanese components firms.

Nearly all automakers source at least some vehicle parts from Japan.

France's PSA Peugeot-Citroen and Sweden's Volvo have either already, or plan, to slash production of thousands of vehicles in the United States and Europe due to worries about a shortage of key parts made in Japan.

Europe's automakers will also face increasing competition from rivals in China that have long-held hopes of freeing the auto market -- now the world's largest -- from domination by foreign brands.

Toward that goal, they are expanding aggressively, buying foreign automakers, acquiring technology and setting up factories and dealer networks across Asia, the Middle East and Eastern Europe.

"China has never made any secret of its ambition to have a great auto industry," said industry analyst Michael Dunne, president of research firm Dunne & Co.

SAIC, the largest Chinese automaker by sales because of its joint ventures with General Motors and Volkswagen, earlier this month launched the first model of its Baojun brand, co-developed with GM and Wuling Motors, as part of a new breed of local brands which are increasingly seen as a new condition for international carmakers operating in China.

The new policy reflects Beijing's impatience at domestic companies' slow progress in developing their own engine technology, Dunne said -- the new brands mean Chinese companies co-own the cars' intellectual property.

No official directive behind the trend has been published, but Dunne said that anecdotally the message was that "the life of a joint venture company is going to be a lot smoother from a regulatory point of view -- a lot smoother -- if there's a new brand."

Copyright Agence France-Presse, 2011

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