Market Newsletter : European Car Market Hits the Road in Fits and Starts : Volkswagen and GM are running on all cylinders, but Mercedes is falling back and British sales are sputtering.
It is the best of times in the European car market, and it is the worst of times.
Germany’s Volkswagen is rolling ahead on all cylinders; Italy’s Fiat is losing market share both at home and elsewhere in Europe. General Motors remains profitable in Europe even though its U.S. parent has been on the ropes; Ford, the other major American player in Europe, is in the red here. BMW is minting money with its new “3” series; Mercedes, Germany’s other major luxury car maker, is losing ground.
Despite a painful combination of recession and inflation, Germans are continuing to buy cars in record numbers, boosting the fortunes of most manufacturers that rely heavily on that huge market.
In recession-mired Britain, by contrast, car sales are anemic. That helps account for the problems of Ford’s European division, which has long dominated the British market. And Britain’s native car industry has all but gone up in exhaust fumes.
Looming over the entire market is the prospect of no-holds-barred competition with the Japanese after 1999, when current restraints on sales of Japanese cars in the European Community expire.
Overall, European car sales are up.
Unlike Americans, Western Europeans are buying more cars. Sales rose from 13.3 million in 1990 to 13.5 million last year, says Automotive Industry Data Ltd. in Britain.
The trend is continuing this year. Sales edged up to 3.7 million for the first three months of 1992 from 3.66 million a year earlier, according to Analyse Auto, an Antwerp (Belgium) consulting firm.
The big growth is in Spain, up 34% in the first three months of this year, and Portugal, up 26%. Britain’s market is the sickest: down 11% in the first three months of 1992 after a 21% plunge last year.
Ford and Volkswagen lead the pack.
The biggest-selling brand name in Europe is still Ford, which captured 11.7% of the market last year. GM is a close second, with a combined 11.5% for its Opel (continental Europe) and Vauxhall (Britain).
But the company with the biggest slice of the market is Volkswagen, which owns Germany’s Audi and Spain’s Seat. Second is Fiat, which owns virtually all of Italy’s car industry, including Lancia, Alfa Romeo and Ferrari.
The gap between the top two is widening. Volkswagen led Fiat by 16.4% to 12.8% in 1991; the margin was 15.4% to 14.2% a year earlier.
GM profits best in Europe, Ford in the United States.
General Motors lost $8.7 billion selling cars in North America last year. Meanwhile, it made $1.8 billion in Europe. Clearly, it was doing some things here that it wasn’t doing in its home market.
One of those things is “lean production,” a catchall term that means producing more cars with fewer workers. GM gives small teams of production workers responsibility for identifying inefficiencies and overcoming them.
Louis Hughes, who took over as president of GM Europe earlier this year, is a staunch advocate of lean production. When he took over at Opel, GM’s German arm, in 1989, he slashed middle-management ranks. He required surviving managers to spend a week each year on the assembly lines. Emulating the Japanese, he instituted just-in-time parts delivery.
Ford has also slashed production and administrative workers in Europe, says Krish Bhaskar, director of Britain’s Motor Industry Research Unit. But Ford has failed to make manufacturing procedures more efficient. As a consequence, Bhaskar says, its personnel reductions “have cut to the bone.”
Ford consistently posted greater profits than GM in Europe in the late 1980s. But GM Europe was nearly $2 billion in the black in 1990 even as Ford’s profit skidded to about $300 million. And last year, when GM made an overall $1.8 billion profit in Europe, Ford lost nearly $1 billion.
In Britain, where Ford has been the market leader since passing defunct British Leyland in 1977, GM has almost overtaken it. Ford outsold Vauxhall, the GM brand name on the island, by just 149 cars in February. But even GM officials predict that Ford will retain its No. 1 spot for all of 1992.
Alas, poor Britain!
Once among the proudest of auto-making countries, Britain has virtually no car industry left. Rover, Britain’s major surviving car maker, sold 229,000 cars on the island last year, down 54,000 in just one year.
Sales by Jaguar, which is owned by Ford, plummeted from about 11,000 to 6,000. And Rolls-Royce sold only 1,722 cars worldwide last year, down from 3,333 in 1990.
Government ownership pays off.
France’s Renault, the only government-owned company among Europe’s big six, is proving that you don’t have to be accountable to private shareholders to make money. Profit more than doubled last year to $730 million. Renault’s market share in Europe inched above 10% last year and reached nearly 11% in March.
Germany takes the biggest share.
In many ways, it is the German car market that is the most interesting in Europe. It is also the biggest, accounting for three new car sales in 10.
After unification, sales soared to 4.2 million last year, up nearly 1 million from the year before, according to the Motor Industry Research Unit. And to analysts’ surprise, sales have continued to remain strong despite Germany’s post-unification economic doldrums.
The biggest immediate beneficiary has been Volkswagen, which commands 27% of the German market. Its new Golf III hatchback, with a base price of about $11,500, is a sellout.
Japan is more efficient.
Altogether, according to an April 29 report by the European Community’s directorate for industry, it takes workers an average of 35 hours to build a car in the EC. In Japan, it takes only 17 hours.
But Japan has not yet been able to take full advantage of its edge. Thanks to a combination of import quotas in some car-manufacturing nations (France, Italy and Spain) and an agreement between Japan and the EC, Japan’s share of the Western European car market last year was only about 12%.
That’s going to change. Japanese manufacturers are already making cars, trucks or components in nine European plants, five of them in Britain. By 1995, says John Longhurst, an auto analyst with the James Capel investment house in London, Toyota and Nissan production in Britain will begin full-scale.
Eastern Europe is the auto industry’s new frontier.
Chris Moore, an auto analyst for Morgan Stanley International in London, says Western manufacturers should be able to produce high-quality cars using local labor and refurbished plants. The chief danger, he says, is political instability not only in the former Soviet Union but even in such countries as Poland, where the government threatens to rewrite foreign investment rules.
Fiat, Volkswagen and GM are dashing into the new Eastern European market with huge investments, desperately hoping that potential profits will overtake short-term expenses. French manufacturers Renault and Peugeot, both strongly profitable for now, are cautiously holding back.
Analysts here generally agree that three of the major ventures already in the works will pay handsome dividends:
* Fiat in Poland. The Italian car maker is buying a 51% share of FSM, one of Poland’s two major car plants, which has long been licensed to build small, outmoded Fiat models. Fiat plans to modernize the plant and double its capacity to 460,000 cars a year by 1998.
* Volkswagen in Czechoslovakia. VW won a heated competition last year to assume 70% interest in the Czech car maker Skoda, which manufactured one of the only Communist-produced cars good enough to be sold in Western Europe.
* General Motors in Hungary. GM began in March to produce its Opel Astra, which competes with the VW Golf III, at a new plant in Szentgotthard. “We wanted our first major investment in Eastern Europe to be located in Hungary,” said Robert J. Eaton, former president of GM Europe, “because we found this country to be the most progressive in establishing a market economy.” (Two days after the opening of GM’s Hungarian plant, Chrysler stole him away and made him heir apparent to Chairman Lee M. Iacocca.)
Putting Europe on Wheels
Automobile registrations in Western Europe in 1991, by manufacturer
Percent of total Volkswagen 16.4% 2,214,477 Fiat 12.8 1,731,319 All Japanese makers 12.3 1,663,834 General Motors 12.1 1,629,706 Peugeot 12.1 1,628,170 Ford 11.7 1,604,338 Renault 10.0 1,352,451 Others* 12.6 TK
*Includes BMW, Mercedes-Benz
Source: Automotive Industry Data
