Dented demand
October 31, 2012
A severe crisis in the European automobile market is forcing many carmakers to resort to harsh cuts. A dent in the public's demand for new vehicles has impacted automakers' profits. Ford predicted a net loss of 1.2 billion euros ($1.6 billion) throughout 2012 and is closing three plants in Belgium and the UK. More than 6,000 jobs will be affected.
In Germany, the future of Opel's production facility in Bochum is highly uncertain. If the plant closes, it would mark the first closure of a German car facility since the end of World War Two. Two years ago, Opel shut down its plant in Antwerp, Belgium, where 2,500 people used to work.
Cooperation schemes to the rescue
Opel, as part of General Motors' European division, is planning to cut costs by forging a strategic alliance with PSA Peugeot Citroen of France. The deal, which involves joint development platforms and purchasing activities, is to save the companies 1.5 billion euros per year.
German automobile expert Ferdinand Dudenhöffer from Duisburg-Essen University said he generally doesn't think much of such alliances.
"But in this specific case, cooperation could lead to tangible improvements," he said. "What's in the pipeline right now, will only have an impact five years from now, but it will help to compete with Volkswagen and other rivals globally."
PSA has already announced the closure of one of its plants in France. It's part of the company's resolve to cut 8,000 jobs. Its domestic rival Renault is also in talks with trade unions over further savings measures.
From bad to worse
The situation on the European market is unlikely to improve any time soon,Dudenhöffer said.
"What's ahead of us is another three to five years of sluggish sales, and that means carmakers have to adapt their capacities accordingly," he said.
Between January and September of this year, EU demand for cars dipped to 9.4 million vehicles, a drop of over 7.5 percent. Dudenhöffer said 2013 will be the worst year for the western European market in terms of total sales since 1993.
Biggest discounts ever
Record discounts are currently being granted to buyers in Germany, eating into carmakers' profits. In addition, take-home incomes have grown slower than car prices. Employees would currently have to put aside their net income from 16 months to be able to afford an average new car. Back in 1980, a little over nine months pay would have sufficed. The average car cost about 25,000 euros in 2011.
Daimler clients have been willing to pay much more, but even the luxury carmaker is in crisis mood. Daimler CEO Dieter Zetsche announced a multi-billion-euro savings program. The DAX-listed firm is planning cuts in all its segments and also looking at the size of its workforce. Daimler has said it hopes to save 1.0 billion euros next year, with additional savings to follow in 2014.
Mercedes no exception
Mercedes' net profit dipped 11 percent in the third quarter of this year.
"It's mainly about preventing a further decline," board member Bodo Uebber said. "We're looking into our current spending, and we'll do everything that's needed to enhance our compatibility."
By comparison, Volkswagen, Porsche, Audi and BMW have not yet seen major problems. Slight changes in demand have been met with more flexible working schemes.
Strong US and Asian markets
VW as Europe's biggest automaker saw it European business decrease by 19 percent in the third quarter, but sales overseas offset the decline.
"VW sells 30 percent of its cars to China," Dudenhöffer said. "This makes them less vulnerable than French and Italian carmakers."
Porsche for its part is already nearing 2011 operating profit levels, with the final quarter of the year likely to break all records. The fancy sports carmaker seems completely unfazed by the sovereign debt crisis in the eurozone.