ERJ staff report (AN)
Paris -- As bad as European auto sales have been this year, they're about to get worse.
That was the verdict from industry executives gathered at the Paris auto show last week. It marks a sharp turn from other European auto shows since the onset of the continent's stubborn debt crisis. In the past, industry executives said they were feeling little effect from the troubles of insolvent southern European countries.
But at Paris, several executives said the atmosphere reminded them of the 2009 Detroit auto show -- an industry rolling out new models but knowing that it faced a miserable year.
"The European car market is a disaster," said Fiat-Chrysler CEO Sergio Marchionne. "It has plunged off a precipice that doesn't seem to have bottomed out yet. The prospects are anything but rosy."
Volkswagen AG CFO Hans Dieter Poetsch said: "It is unclear if all carmakers will survive without governmental help." And in an apparent shot at Fiat, he added: "Especially carmakers in southern Europe that produce small cars will be affected."
VW CEO Martin Winterkorn told reporters that 2013 will be "a very challenging year, especially in Europe."
30 percent incentives
Through August, European sales were 8.6 million, down 7 percent, according to ACEA, the European automotive industry association. Susan Docherty, head of Chevrolet in Europe, said the situation reminded her of General Motors' troubles as it slid into bankruptcy in late 2008 and 2009, when Docherty was a GM executive in Detroit. She said heavy automaker incentives were a bad sign.
"Just as you would expect when you've got lots of capacity and lots of inventory out there, I am seeing incentives that are anywhere from 20 to 30 percent of gross sales, which is unbelievable," Docherty said.
She said August was a sobering month, with even previously healthy brands taking a hit. That makes the prospects for the rest of this year and 2013 discouraging.
Masahiro Moro, executive officer in charge of global sales for Mazda Motor Corp., said automakers, "including premium makes," are discounting heavily to create demand and alleviate bloated inventories amid 11 straight months of vehicle sales declines in Europe.
Mazda is under less pressure because the automaker reduced European vehicle stocks earlier this year, Moro said.
"It was a little bit painful to decide, but we took inventory down at the beginning of this year, so now we are managing quite well, and that's the reason we don't push so hard" by adding large discounts, he said.
To boost sales, automakers also have turned to self-registrations, or dealers registering new vehicles as sold to themselves before selling them as used cars at a heavy discount, Moro said.
"There are a lot of [used] cars that start at zero kilometers of mileage," he said.
Payback from spiffs
Colin Dodge, Nissan Americas chairman, said the heavy discounting this summer is the most intense he has seen since late 2008 in the United States.
"I don't recall a period, besides the Lehman shock itself, where people were doing anything worse," he said.
Dodge said discounting waned in September. The trouble is the lack of cut-rate deals is bringing down industry sales volume in Europe.
"What's been happening in the last three months is because everybody's been stuck with a load of inventory. They pushed it, which artificially raised the total industry sales," Dodge said. "Now they're taking their money off the bonnet, and the total number of cars being sold is dropping more to demand."
Asked when natural demand will grow again, he said: "In my opinion? Several years. You can quote me on that."
At its pre-show event, Volkswagen Group carved out 15 minutes to talk about its European training program for 10,000 university graduates and 5,000 apprentices -- a sign of its concern about high unemployment, especially among youths.
"We are all aware of the debt crisis and the low level of trust with high youth unemployment," Stefan Gruehsem, group spokesman, said.
Winterkorn underlined that "this show is occurring in turbulent times" but assured that "we are convinced the Volkswagen Group will continue the path it is on. We have the right vehicles at the right times."
Other executive were less optimistic. Renault-Nissan COO Carlos Tavares said: "We can't see the beginning of the beginning of a rebound."
Ryan Beene, Diana T. Kurylko, Reuters and Bloomberg contributed to this report.
From Automotive News (A Crain publication)