Sales Will At Least Bottom Out.
But No Return To Glory Days Before 2019.
If you’re a European and you plan to buy a new car in 2014, the outlook surely has never been brighter. New cars with fabulous technology will make life easy, save you fuel, and maybe your life in an accident. Prices are low as too many brands desperately chase down elusive buyers by throwing money at them.
But this all spells continued misery for non-German car manufacturers.
Sales in recession-hit Western Europe are down for the fifth year in a row, and have lost close to 3.5 million a year since the pre-crisis high of 14.79 million. This year sales will fall 2.3 per cent to 11.49 million, according to LMC Automotive, and although 2014 looks like finally being a plus year, sales will only rise about 2.6 per cent, LMC said. You will be hard pressed to find any expert to say that pre-2007 levels will be achieved again before 2019 or 2020, at the earliest.
Not surprisingly, non-German domiciled mass car makers are awash with red ink. General Motors Europe’s Opel-Vauxhall subsidiary and Ford Europe expect to lose more than $1.5 billion. Peugeot-Citroen of France won’t do much better. Fiat of Italy’s European operation lost more than $400 million in the first nine months of 2013. Renault is doing better, largely because of the success of its Dacia budget brand.
You will notice that this doesn’t include any German companies. This is because many Germany firms like BMW, Mercedes and Volkswagen’s Audi operate in the virtually untouched luxury sector. Also the German government instigated reforms in the early part of the century which cut wage costs and allowed more operationally flexibility. Volkswagen took some harsh investment decisions and spent big to rationalize production, and its value brand VW, has managed to stay in the black.
Financial results in January will reveal the shocking truth about non-German finances, and don’t expect the economy to offer much hope for the future. According to Standard & Poors, real GDP will fall 0.6 per cent in the eurozone this year, and expand just 0.9 per cent in 2014. The eurozone groups 17 of the total 27 European Union members.
“Various other indicators suggest that a European recovery will be long and arduous,” S&P said.
Chronic overcapacity remains unsolved by the non-Germans, although most have made a start at plant closures and rationalization. Action has been delayed in the past because even a financially rocky firm like Peugeot-Citroen is perceived as a national icon which must be kept alive at all costs. Renault has relentlessly moved production out of Western Europe, despite being owned 15 per cent by the government.
There are some experts though who still think short-term prospects are positive.
Arndt Ellinghorst, analyst with International Strategy & Investment, said recent sales data, which showed accelerating sales, meant volumes could surge ahead by up to five per cent next year, even though he currently has a forecast of a 2.8 per cent gain.
“We continue to believe that 2014 will be a solid year with a recovery of European demand and pricing being potentially the biggest surprise,” Ellinghorst said.
Jens Schattner of Macquarie Equities Research said there could be a moderate recovery in sales from depressed levels next year.
“However a Western Europe sales growth of just 2.3 per cent in 2014 still leaves Europe with a still massive overcapacity of some 35 per cent in our view,” Schattner said.
Commenting on November’s sales growth of 1.2 per cent, the third month in a row of growth, IHS Automotive analyst Carlos Da Silva was cautious too.
“Europe is definitely bottoming out but it is certainly still too soon to talk about solid growth,” Da Silva said.
If the weak economic outlook isn’t bad enough, structural changes in Europe are worrying car makers. The cost of car ownership is rising – the price of gasoline here is often more than twice that in the U.S. because of punitive taxation – and vehicle life-spans are getting longer so replacement demand is cut. Some politicians are keen to put people off buying cars on environmental grounds by increasing taxes even more and banning cars from city centres.
Nevertheless, there are still some great new cars to choose from. The recent short-list nominations for 2014 European Car of the Year are the BMW i3 and Tesla Model S electric vehicles, the Peugeot 308, Citroen Picasso C4, Mazda3, Skoda Octavia and Mercedes S-Class.