Tough Times for Car Industry Ahead of Geneva Motor Show

March 5, 2012
'Another harsh economic downturn or a persistent weakness in auto sales in Europe is likely to trigger more drastic moves from some selected manufacturers,' said ratings agency Fitch.

Over-capacity, price pressures and carmaker tie-ups, like the one just announced by General Motors and PSA Peugeot Citroen, will likely cast a shadow at the 82nd Geneva International Motor Show this week.

Motoring fans -- amateur enthusiasts and industry professionals alike -- will of course revel in the presence of about 700 automakers at the 10-day event which opens to the public on March 8.

But the exhibition, the second biggest of the year after the Detroit Auto Show in the United States in January, will not be able to escape the effects of a struggling world economy and over-capacity. The International Monetary Fund (IMF) has dropped its world growth forecast to 3.3% while the eurozone, bogged down in the public debt crisis, even risks plunging into recession.

"Over-capacity, relentless competition and heavy price pressure are compounded by the extremely tough environment with declining consumer and corporate confidence in several European markets," said analysts at ratings agency Fitch.

"Another harsh economic downturn or a persistent weakness in auto sales in Europe is likely to trigger more drastic moves from some selected manufacturers."

Mergers, acquisitions, restructuring and some plant closures cannot be ruled out this year, the agency said, as adverse conditions persist and put further pressure on companies' revenue and profitability.

The health of the industry varies widely across the globe however. Sales of cars and commercial vehicles are set to grow 7.7% this year, according to Standard & Poor's (S&P). Within this, Asia continues to be the strongest region, with an expected sales growth of 10.9%, followed by North America (10.6%). In western Europe sales are meanwhile expected to stagnate at minus 0.4%.

For European carmakers the situation is less dramatic than during the 2009 financial crisis, notably for world number two Volkswagen which enjoys almost half its sales in emerging markets.

The Wolfsburg group hopes to sell three million vehicles in China and one million units in North America from now to 2018, while PSA Peugeot Citroen is equipping itself with a second joint venture in China and plans to open a site in India.

In terms of vehicle registrations in Europe, the picture again varies widely. France saw a 2.1%drop last year in the number of registrations, in Britain the figure went down 4.4% and Spain witnesses a hefty 17.7%. In Germany, Europe's economic powerhouse and the region's top car market, sales rose 8.8% however.

The situation is weighing on Europe's non-specialist carmakers who are still dependent on the Old Continent, as is the case for PSA Peugeot Citroen.

The world's top carmaker General Motors and the French group announced a new partnership last week. For GM, nearly $750 million in European losses marred a record year of profits in 2011, while Peugeot, which sells two-thirds of its vehicles in Europe, saw sales drop 1.5 percent last year and its profit halved. The concern is also felt over at German firm Opel which is reportedly under pressure from owner GM to reduce its costs or even close factories.

On the other hand premium German carmakers like Mercedes-Benz, part of the Daimler group, and BMW, along with Ferrari, which is owned by Fiat, and Porsche in the luxury market, are smiling thanks to the hungry appetite of emerging countries. The new Porsche Boxter and Ferrari F620 are indeed among the 140 vehicles making their debut at the Geneva Motor Show which, despite the difficulties facing the industry, remains a dream factory for petrol heads everywhere.

Copyright Agence France-Presse, 2012

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