Europe’s car-price war will intensify this year as local automakers defend their home markets against Asian carmakers’ plan to add 343,000 sales in a flat market.
Virtually nobody is forecasting this year’s sales will exceed the 15.34 million cars sold in 26 of the 28-country European market last year. General Motors Europe expects a decline of up to 2 percent. If GM is right, that’s a market of just 15 million.
But buoyed by fresh products and a strong euro that gives a price advantage to imported cars,
13 Japanese and Korean brands forecast a collective 11.14 percent gain in their 2005 European sales, to 3.42 million units from 3.08 million last year.
Against that, even French automaker PSA/Peugeot-Citroen – since 1997 the hottest traditional European auto group – says it cannot maintain its momentum. It sold 3.4 million cars last year compared with 2.1 million cars in 1997.
“Europe, our core market, remains depressed,” Folz told a supplier conference in Paris, March 30. “A price war is taking place, with an aggressiveness unmatched in recent history.”
Intense price competition cut PSA’s operating margin to 3.8 percent last year, well below its target of 6 percent.
Traditional European brands are already reeling from a three-year sales blitz by Asian brands. In western Europe alone, Japanese and Korean automakers between 2001 and 2004 gained a whopping 562,790 total sales, up 28.8 percent.
Worse, because western European sales fell during the period by 300,000 units to 14.5 million, the Asians picked up 4.2 points of market share, to a record 17.4 percent of sales.
This year Asian brands have several advantages:
“The strengthening of the euro is a free incentive for Asian automakers,” said John Devine, GM vice chairman and chief financial officer.
For years, traditional European brands viewed Japan as their main threat, but their attention is shifting to South Korea.
Korean brands represent 65 percent of the Asians’ projected gains this year.
“Hyundai is a competitor I do consider as dangerous,” said departing Renault Chairman Louis Schweitzer.
A growing price competition by Asian makers puts further pressure on European carmakers, whose margins this year are already affected by the rising cost of commodities such as steel and plastic.
Fiat Auto CEO Sergio Marchionne said only a portion “of the 200 commodity prices raised this year could be transferred to customers.”
– Sylviane de Saint-Seine contributed