GENEVA -- Behind the bright lights of this year's Geneva car show, looming military conflict in Iraq has got auto industry executives fretting about slumping demand, higher oil prices and supply chain delays.
Carmakers, already suffering from weak profits and sector overcapacity, could be hit by an even sharper fall in sales if consumers decide not to go shopping in the event of war.
Several executives at the show said the United States would bear the brunt of the drop, which would affect German companies heavily dependent on the world's biggest auto market, but Europe is unlikely to escape unscathed.
Car sales are affected by a range of factors including the new products on offer and discounts but consumer sentiment, itself sensitive to the prospect of war, is the main driver. "Any kind of geopolitical uncertainty would upset the market," said Ford Executive Vice President David Thursfield "Clearly this period of uncertainty is cooling the market right now."
U.S. auto sales overall sank about seven percent in February despite high levels of incentives on cars, while western European sales slumped by the same amount in January.
Chrysler Chief Operating Officer Wolfgang Bernhard told Reuters he was basing his assumptions for this year on a U.S. market of 16 million to 16.5 million, down from about 16.8 million last year, but noted that in a worst case scenario with a drawn out war in Iraq spreading to a regional conflict, sales could slump to 14 million.
"That's the doom and gloom scenario," he said.
One of the first signs of war worry is seen in planned production cuts. GM said earlier this week it would reduce output in the second quarter from the same period a year earlier.
The world's most profitable automaker, Porsche, is one of the first European companies to act.
The sports car maker said on Tuesday it would cut production of its 911 and Boxster models from March due to weak demand in the United States and Germany.
"You have to roll with the punches," said Hans Riedel, Porsche board member reponsible for sales.
Earlier Porsche said it sold 37 percent fewer cars in North America in February than in the same month last year. Its shares fell as much as 15 percent.
Porsche is not alone. Other luxury manufacturers, usually more insulated from macro-economic fluctuations than the mass producers, are also being hit.
"In the first months of this year we are feeling the results of the international crisis," said Antonello Perricone, chief of Maserati, declining to give specific numbers.
Most executives would not wager an estimate of exactly how much the European market would fall this year, but most admit to having looked at various scenarios.
"It is very hard to call. It depends on the duration," said GM Europe chief Mike Burns.
"We have run scenarios and with the European market and economy weak in general, it is hard to tell what a conflict would mean with things like a spike in oil prices," he added.
Higher oil prices are also likely to dampen sales.
Europe's second-biggest carmaker, PSA Peugeot Citroen, expects a decline of up to two percent in overall European sales this year but Chairman Jean-Martin Folz reiterated there was a risk demand could plummet by as much as 10 to 15 percent if there was a major crisis involving soaring oil prices.
"It is not my favourite case and I don't believe this will happen," said Folz.
Another potential problem is delays to the delivery of parts which could interrupt production. Thursfield said Ford had some sort of contingency plan which included some stock piling.
"Obviously we are taking precautions against a downturn," said Thursfield.
GM has also made plans.
"It only takes one part (to mess up production)," said Burns.
Several more optimistic executives pointed to an upturn after the war. "If there should be a war and the war is short, the need for instant gratification may come back and we have enough flexibility in our production to up the ante again," said Porsche's Riedel.