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VW Success In Europe Threatens Opel, Peugeot – Report

Germany’s Volkswagen could have see its European market share accelerate to about one third by 2020 if present trends continue, while GM’s Opel-Vauxhall and France’s Peugeot-Citroen will be in mortal danger, according to Bernstein Research analyst Max Warburton.

Government’s may have to step in to save the weakest, he said.

VW’s Western Europe market share in 2012 will be close to 24 per cent.

Warburton, in a report, reckoned VW will make what he called a “mild” profit in 2012, while the remaining mass car manufacturers – France’s Renault and Peugeot-Citroen, Italy’s Fiat, U.S. owned GM Europe’s Opel and Vauxhall subsidiaries, and Ford Europe will share in losses of close to $8 billion.

Peugeot-Citroen will account for about $2 billion (€1.6 billion) of that.

“If current trends continue, some will be forced to retrench. Recapitalisations, state involvement and even nationalization may prolong the process,” Warburton said.

France recently stepped in to prop up Peugeot-Citroen by underwriting over €7 billion of bonds issued by its financing bank. In return, the socialist government insisted on a board seat, and for unions too. In 2009, the French government lent Renault and Peugeot-Citroen €3 billion each to help them ride out that recession, while they took advantage of cash-for-clunkers schemes. Experts say that instead of taking harsh decisions which would have made them more competitive now, French companies used the money to ride out the storm. German firms in contrast took harsh measures to cut costs and are now reaping the benefits.

The Bernstein computers have been seeking to extrapolate the current problems to see what emerges in 2020. 

“We have modelled the exit of Opel, the slimming down of Fiat (already announced), a reduction in activities at Peugeot-Citroen (not announced but inevitable) and some further retrenchment by Ford and Renault. If VW picks up 50 per cent of the incremental share made available, it could have 33 per cent of the Western European market by 2020,” Warburton said.

VW’s success, and weakness in markets like France, Italy and Spain are driving laggards to possible failure.

“(This will) drive other manufacturers close to the edge. Fiat, Renault and Peugeot-Citroen all have large gross cash balances to provide near-term protection, and Ford and GM-Opel have well capitalized U.S. parents. But the clock is ticking, the financial situation of these companies is not improving and in the next 24 months some will begin to run out of money. We see Peugeot-Citroen and Opel as most at risk of failure – or at least of being in need of government intervention,” Warburton said.

Warburton said the failure of the non-Germans was inevitable because the euro zone single currency allowed the likes of VW, Mercedes and BMW to compete using this weak currency against less efficient competitors, which previously would have used devaluation of their currencies to win sales.

As VW marches on, Warburton expects Fiat to slim down to just 500-based vehicles, and seek to move upmarket via its Alfa Romeo and Maserati brands, if VW doesn’t buy Alfa. Ford will slim its mid-size Mondeo ambitions, Peugeot-Citroen will get smaller, while Opel may shrivel down to its Korean-made Chevrolets. Renault will have to dump its recently stated move upmarket.

Only a euro zone breakup and a return to the Deutsche mark will derail VW’s progress.

Neil Winton – December 20, 2012

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