Discount wars erupt across Europe as sales sag
Opel, Fiat, Renault, Seat, Peugeot among mass-market brands squeezed
Opel models await shipment at GM's Bochum, Germany, plant this summer. European car sales fell almost 7 percent in the first half of the year.
Photo credit: BLOOMBERG
MILAN -- Free road tax, cheap fuel, cash rebates and even a free car.
These are only some of the knock-down offers European automakers are offering in a brutal price war to try to lure the few consumers still buying cars in a deepening five-year sales slump.
"We're not selling a car at a discount. We're selling a discount with a car attached," said Claudio Stucchi, a sales consultant at Milan Honda dealer Mi Auto.
He is selling new CR-V SUVs for 22,900 euros ($28,000). That's 7,000 euros off the sticker price -- Honda's most aggressive offer ever in Italy.
Then there's the 20 percent discount on new parts, plus a free rubber ball thrown in for the kids of anyone who walks through the door for a test drive.
"If there's no discount, the cars don't move," the forlorn car dealer said, shaking his head with a wry smile.
The bargains underline the pressure in the mass market, where car makers are trapped between slow sales in a moribund economy and offering discounts that gnaw away at painfully small margins.
Ford's mounting losses
Ford has already warned investors it will lose about $570 million in Europe in the second quarter, compared to a first-quarter loss of $190 million.
Ford's western European sales slumped 10 percent in the first half of 2012 as it opted not to match heavy discounting by rivals. But the sales decline hit 16.1 percent in June, year-on-year, in Ford's traditional 19 western European markets.
Peugeot last week said it would close a factory and cut 8,000 jobs to stop cash burn.
GM's European arm Opel, meanwhile, is overhauling management to speed its restructuring and cut losses of $3.5 billion over the past three years.
Peugeot and Opel are the biggest discounters in Germany, France and Britain, according to a Barclays report that downgraded the European auto industry on July 13, showing the direct and deadly correlation between discounting and losses.
In Britain, Peugeot offers three years' free insurance, tax, servicing, roadside assistance and warranty for anybody buying a new car.
In France, buyers trading in an old car receive 1,500 euros off the new 208 mini or 5,000 euros off the mid-sized 508.
"It's an absolute bloodbath," said Yves Pasquier-Desvignes, president of GM France. "It's very aggressive in the company fleet market and consumer sales at the same time."
European car sales fell almost 7 percent in the first half of the year. However, sales at Fiat, Seat, Renault, Opel and its British equivalent Vauxhall have all tumbled by about 15 percent.
Adriano Luciano, who works at Unipol bank in Milan, said he decided to replace his aging Volkswagen with a Skoda this year because of eye-catching discounts.
"Skoda was really pushing the car. I got the motor I wanted and the car I wanted for about 4,000 euros off a list price of about 28,000," he said. Skoda is owned by VW.
Car or handbag?
In deals reminiscent of the 1980s, when former Chrysler chief Lee Iacocca offered "buy a car, get a check!" as he tried to save the company from bankruptcy, dealers in Europe are cutting as much as 30 percent off sticker prices.
Margins on small cars can be as narrow as 3 percent in good times, so many cars are now selling at a loss.
Small city cars routinely sell for well below 10,000 euros.
A Ford Ka is on sale in Italy for 7,950 euros -- less than the average price of a Hermes "Birkin" handbag.
In Britain, the Hyundai i20 sells with a 20 percent discount for 7,995 pounds ($12,500).
In Germany, online dealer MeinAuto.de offers the Exeo sedan from VW's loss-making Seat with discounts of up to 26 percent.
Even the classic VW Golf is down to 12,990 euros, against an original price of almost 17,000 euros, as German dealers shift stock ahead of a face-lifted model due to arrive in the fourth quarter.
It all looks like a great sale, but cash-on-the-hood and other offers could be a bad thing.
"With all these discounts, how do customers know they are paying the right price?" said Tommaso Tommasi, publisher of AutoNews, which compiles discounting statistics from dealers. "Faced with doubts, people don't buy."
It isn't only cars on the garage forecourt that dealers are discounting.
Snappy sales pitch
Carfile, a British online dealer, is offering an 8.5 percent discount on the Jaguar XF Sportbrake wagon, even though it doesn't go on sale until November.
Fiat, maker of the Punto and trendy 500, probably wins the prize for snappiest sales pitch.
Anyone buying a new car before July 31 receives a bespoke credit card that lets them buy gasoline for one euro a liter at certain Italian service stations.
Italy has the highest gas prices in Europe, averaging 1.83 euros a liter.
The offer is based on a calculation of the motorist's potential mileage, so the cheap fuel can last for up to three years.
And for the month of July Fiat is throwing in an extra 1,000 euro bonus if you drive a car off the lot.
Nevertheless, it is Renault's Spanish bargain that probably takes the cake.
Buy an Espace or a Laguna sedan and you can also drive off with a free Twizy. The tiny electric car usually has a retail price of about 5,000 euros.Contact Automotive News