COMMENT: More losses in the German car industry -- and what's behind the red ink

COMMENT
Franz W. Rother is Editor-in-Chief of Automobilwoche

In 2003 Ford lost billions. Opel is in no better position, despite its Olympia restructuring program. And VW boss Bernd Pischetsrieder will most probably also announce losses at the company's earnings press conference in early March -- VW has been warning of a drop in profit for months.

The line of disaster reports seems to continue. What is wrong with German high-volume manufacturers is the obvious question. Is it no longer possible to make money in Europe with bread-and-butter-cars? Or could it be that the management teams of the companies in question have failed?

The economy seems to be everyone's favorite excuse for the bad results. In Germany, consumer behavior suffered from the discussion about health-, tax- and pension reforms; in Italy the wrecking bonus was scrapped; and in France the government's pension plans were seen as the reason people were taking money to the bank rather than to a car dealer. This is all true. But it only partially explains Ford, Opel and VW's profitability problems.

In any event, mistakes made by management teams are also to blame for the current misery. If a company pushes up the number of new registrations by putting a large number of its vehicles on the road through car rentals, then it shouldn't complain if the figures show that the company is in the red. A company that forces constantly rising numbers of vehicles onto its dealers leaves them no choice but to take part in the incentive wars with low-cost manufacturers from the Far East. Those who fail to harmonize prices within Europe should not be surprised if even their own employees start buying re-imported cars. And those who don't have the courage to consistently cut overcapacity and close down unprofitable plants will spend a long time dreaming of a turnaround.

One thing is clear: such financial losses cannot be recovered by canceling newspaper subscriptions and stopping coffee and biscuits for employees.

Often money was saved in the wrong places, and invested in the wrong places as well. Companies cut costs on emission controls for diesel engines and saved money by postponing the introduction of modern convertibles and roadsters. And companies didn't spend the money required to maintain and boost brand image; today the Kia brand almost has a better reputation in Germany than Ford. Instead, automakers invested in four-cylinder high-performance engines and swanky heavy vehicles, which immediately caught environmentalists' attention.

In any case, it's out of place to pity the management bosses who will soon have to announce their bad results. It is the employees of those corporations one should pity. They are the ones who will have to pay for their managements' mistakes during the coming months -- either with unpaid overtime or, in the worst case, with their jobs.

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