Carmakers panic over sales gridlock

Europe’s motor industry is in a panic. In boardrooms across the continent the talk is of the biggest emergency for 60 years — or at least since the 1973 oil crisis.

As executives ask the European Union for a €40-billion bail-out to match or surpass the $25-billion sought by the American Big Three manufacturers — General Motors, Ford and Chrysler thousands of staff are being laid off. Sales are collapsing as the recession bites, with vehicles stacking up at ports around the world.

Over Christmas and the new year, French, German, Italian, Spanish and even new Polish and Czech car plants will remain shut for an extended holiday that could last up to a month.

In the United States the financial travails of the Big Three are being exacerbated by the economic downturn. Goldman Sachs slashed forecasts this week, predicting that sales of cars, 4x4s and pick-up trucks in the US would fall 17% to 13,4-million units in 2008. Next year would be even worse, the investment bank predicted, with sales falling to 11-million — down from earlier estimates of 13-million. Sales for 2010 are predicted to be 13-million.

Americans are also driving less, according to US government figures. The number of vehicle miles travelled in the US has fallen for 11 months in a row, despite petrol prices dropping.

The estimates are bad news because annual sales of 16-million are considered financially healthy, according to US manufacturers’ targets. Anything less puts serious pressure on their business models. Patrick Archambault, the Goldman Sachs analyst who wrote the note, said it was “difficult” to recommend investing in the Big Three until there was further clarity on a US government bail-out.

The Detroit manufacturers, which are running out of cash, are expected to submit a request for a $25-billion bridging loan from the US troubled asset relief programme by December 2.

Meanwhile, factory directors are trimming production plans. At the huge Deutsche Bahn Schenker component supply centre for the Volkswagen plant in Hanover, there is all the evidence that “white van man” is in retreat, refusing to buy new vehicles as the recession deepens.

It is not just the lines of unsold vans that are mirrored at other parks across Europe. Marc Hennecke, head of the DB supply centre, says the plant is changing its production plans every two days because it is unsure of demand. This year the VW plant should produce 170 000 vans; next year, at the latest count, it plans to scale back to 153 000. By next week the budget could be for fewer than 150 000. Either way, it is closing for four weeks.

Last month in Europe new van sales fell 18,3%, according to the latest figures from the industry lobby group ACEA, with sales in Western Europe down almost 20% to 144 516. In Britain and Spain, which are the most affected by the credit crunch, sales plunged 35,5% and 52% respectively.

Hopes that strong growth in Eastern Europe and Russia could bail the industry out have evaporated. Polish sales of new lorries dropped 43,2% in October and eastern Europe is down 11% this year. Even the upbeat boss of the German lorrymaker MAN, Hakan Samuelsson, said in October that he expected a 10% fall next year. Since then, the situation has deteriorated fast and analysts now expect demand to drop by 40% in Western Europe.

New car sales are also weak, falling 14,5% last month in Europe.

In Ireland and Spain they plunged 55% and 40% respectively. European car sales so far this year are down 5,4% at 12,9-million. Italy’s Fiat thinks its sales will drop 20% in 2009.

Citigroup’s John Lawson, doyen of auto analysts, said this week that a drop in demand of 15% or worse in western Europe was “quite feasible” next year. Sales could be two-million lower than in 2008. Christian Streiff, ACEA president and Peugeot Citroen boss, says the fall could be 17%.

Even Porsche — the world’s most profitable car company (mostly from financial trading) — is experiencing a severe slump in demand. Wendelin Wiedeking, chief executive, said in Stuttgart this week there was no chance of repeating last year’s record sales of close to 100 000.

In the first four months of Porsche’s fiscal year sales are estimated to have fallen 18% from 30 700 to 25 200 and the launch of the new Panamera sports saloon, due in 2009, is only expected to boost sales in 2010. Porsche is also closing its plants for seven days.

Industry sources say prospective buyers of new cars are scaling back their ambitions by switching from gas-guzzling luxury vehicles to more fuel-efficient, smaller models.

BMW has seen customers opt for its 3-Series or for smaller engines in its 5- and 7-Series ranges. Mercedes-Benz, owned by Daimler, saw sales slump 21% in October to 82 000. Chief executive Dieter Zetsche told Der Spiegel recently: “The affluent still have the necessary money, but some feel it is no longer appropriate to drive a big car.”

The new “green” agenda, endorsed by Barack Obama and a prime cause of the Detroit three’s decline, is beginning to take hold in Europe, too.

Daimler’s highly fuel-efficient two-door Smart car, which is now also available in the US, has seen its sales so far this year leap 47% to 113 2000 and even in October they were up 7%.

Until recently French sales held up because of a government scheme offering discounts on small, low-emission models. ACEA is now pressing the EU for state subsidies to encourage owners to scrap dirty old cars and replace them with lean and green models.

For eco-friendly drivers in Europe, the problem is that hybrid, electric and other greener alternatives are too expensive or scarce, at least until 2015.

Expect, as in the US, to see car­makers descend on motor shows next spring with even more green models. But, as at last week’s Los Angeles show, they may not be able to afford to go. —

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