GENEVA -- Price pressure will remain tough in Europe's car markets in 2005, but a price war is unlikely to intensify as car makers fight to protect margins, PSA Peugeot Citroen's chief executive said on Tuesday.
Europe's car markets saw cut-throat price competition in 2004 as manufacturers used price incentives to try to spark interest in a lackluster market.
But PSA's CEO Jean-Martin Folz said more aggressive incentives and price cuts were unlikely, as manufacturers try to protect margins already under pressure from soaring raw material costs.
"I don't see increased price pressure, but things are likely to stay as they are," Folz told reporters at the Geneva car show.
PSA last week said its operating margins would at best remain stable in 2005, when it expects no real improvement in the European market but ongoing pressure from material costs.
Its domestic rival Renault echoed PSA's cautious tone last month, saying that it expected some narrowing of its margins in the year ahead due to tough trading conditions.
Both carmakers have repeatedly said that in current market conditions they will focus only on profitable segments, unwilling to sacrifice margins to boost sales. Volkswagen's Chief Executive Bernd Pischetsrieder said on Tuesday that his firm would not participate in a rebate frenzy in order to win sales.
PSA is counting on a slew of new product launches to help its performance in 2005, including the Peugeot 107 and Citroen C1 city cars which began production on Monday at a new plant in the Czech Republic, run in alliance with Japan's Toyota Motor Corp.
"Between mid-2004 and mid-2005 we will have renewed around two-thirds of our range," Folz said, adding that the 10 new cars launched over the period represented an annual sales potential of 1 million units.
But Folz repeated that the impact of raw material costs on PSA's operating margin would increase in 2005 to a hit of between 250 million and 300 million euros ($396 million), and said the auto sector would benefit from greater transparency in the steel industry.