Marchionne – Overly Aggressive; VW – We’re Competitive
Bernstein Says VW’s China Profits Subsidising Price War In Europe
Fiat-Chrysler boss Sergio Marchionne accused Volkswagen of being too aggressive with its pricing in Europe, but commentators pointed out that it was VW’s qualities which allowed it to make money, while many of its less-efficient rivals were awash in red ink.
Marchionne, who is also chairman of the European Auto Manufacturers Association, caused some angst at VW, which called for his resignation from the industry body.
VW Group sales chief Christian Klingler denied the company was too aggressive. “We play in a competitive environment,” he said. VW spokesman Stephan Gruehsem said in a statement that Marchionne was not qualified to be ACEA’s (the association’s French acronym) chairman, and that VW might withdraw.
The Financial Times’ Lex column said Marchionne was wrong.
“The reality is that VW’s more diversified structure and greater exposure to the German market, which grew slightly in the first half of 2012, gives it a flexibility that French and Italian mass-market automakers lack,” Lex said.
Marchionne had told the International Herald Tribune newspaper that the current European auto market was the toughest he had ever experienced and was a “bloodbath of pricing and a bloodbath on margins.” He singled out VW for contributing to losses by cutting prices.
Marchionne renewed his call, first made at the Geneva Car Show in March, that the European Union orchestrate and finance a move to help European auto makers cut back on excess capacity. Marchionne has criticised German manufacturers for declining to help the industry take out inefficient factories. Critics point out that the German industry has already undergone harsh and expensive cost-cutting, and is unlikely to be happy about contributing its funds to make its competitors become more formidable.
China
Marchionne’s comments followed a report from Bernstein Research analyst Max Warburton which said VW was using China profits to subsidise a price war in Europe to relentlessly build market share at the expense of competitors in France and Italy.
“VW is using super-normal Chinese profits to subsidise a price war in Europe, and since it operates in the same currency as competitors, it no longer has the old ‘natural brake’ of a rising Deutschmark to slow its export success,” Warburton said in the report.
“Can the French and Italians escape the ever increasing pressure from the Germans?” asked Warburton.
“We’re increasingly unable to see a way forward for them. Consumers prefer German cars. They are being offered at ever lower prices. Locked in the same currency, the non-Germans can’t devalue their way back into competition,” Warburton said.
The FT’s Lex also didn’t like Marchionne’s idea that the E.U. should lead some kind of auto bailout.
“Mr Marchionne wants the European Union to sort this out, by organising production cuts that include the Germans. That should not happen. Political machinations would be undesirable and unaffordable: even France’s new industry strategy was light on fresh funds. Investors, all the while, should focus on premium manufacturers. Elsewhere, there is no certainty that a turning point has yet been reached,” Lex said.
Neil Winton – August 1, 2012
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