Despite record profits, Europe's automakers should keep the champagne on ice

Most of Europe's automakers are posting record sales and profits, boosted by booming sales in China and other fast-growing markets, but success abroad is hiding mounting danger at home, according to a German auto industry academic.

The EU's debt crisis is having a big impact on new-car sales in the region and its effect is likely to get worse in the next few years, says Professor Ferdinand Dudenhoeffer, who heads Duisberg-Essen University's automotive research center (CAR).

New-car sales in the so-called PIGS countries -- a grouping acronym used by international bond analysts for the economies of Portugal, Ireland, Greece and Spain -- fell to 1.44 million last year from 2.28 million in the pre-crisis year of 2007, Dudenhoeffer says in a study.

Spain and Greece are suffering especially badly. New-car sales in Greece plummeted to 141,499 last year from 279,794 in 2007, the study says. It forecasts that 113,000 new cars will be sold this year in the struggling country. Spain also shows no sign of coming out of crisis and sales are likely to be about 785,000 this year, compared with 1.61 million in 2007 and 982,015 last year.

In Ireland, car sales fell to 88,373 last year from 186,540 in 2007, with sales of 89,000 forecast this year. Portugal is the only PIGS country that escaped a steep slump, with sales dropping to 223,491 last year from 201,816 in 2007, but tough austerity measures that are coming will hit car purchases. Portugal's 2011 sales are forecast at 201,000.

The PIGS countries accounted for 15.9 percent of western Europe's 14.38 million new-car sales in 2007, a figure that declined to 11.4 percent of the region's 12.56 million sales in 2010.

As these countries and other western European nations introduce cost-saving programs to tackle high sovereign debt, incomes and spending power will fall. New-car purchases will be among the first to be postponed when people tighten their belts, Dudenhoeffer says.

Scrappage incentives launched by governments during the crisis have made the problem worse by encouraging buyers to bring forward their purchase of a new car.

If France and Italy -- which have "fragile" credit ratings, according to the study -- become the next countries hit by the debt crisis, the problem will worsen dramatically.

France, Italy and the PIGS countries accounted for 68 percent, or 6.8 million units, of western Europe's new-car sales in 2007, a figure forecast to fall to 41 percent this year. Cash-strapped governments cannot be expected to launch new scrappage programs to rescue sales.

The western European auto market is weaker than it appears and it may be in line for a long recession if the debt crisis worsens, the study concludes. Says the professor: "The auto industry's champagne mood shouldn't be allowed to hide those issues."

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