Carmakers pessimist on European recovery

GENEVA - The Associated Press

A general view shows an exhibition hall during the first media day of the Geneva Auto Show that will take place from March 7 to 17 at the Palexpo in Geneva. The carmakers are gathered to expose the new models during the show. REUTERS photo

European automakers that began rollout of new models at the Geneva Motor Show on March 5 do not see a recovery in European automotive sector this year. While pessimist sector professionals that see a possible recovery after a long time suggest pushing sector outside Europe, even more optimist ones set their hopes to next year at the earliest for finding a cure.

It is still a tough time to be a carmaker as profits are falling as idle factories produce more costs than cars. Meanwhile in Europe, one the world’s leading auto markets, consumers aren’t buying new cars.

Renault CEO Carlos Ghosn says the European car market is going to be tough for five more years and the only way for struggling carmakers to survive is to push into other markets.

“Our industry is not an industry of rationality. It’s also an industry of emotions. It’s about brands, it’s about attractive cars, it’s about power, it’s about handling, it’s about opinions, it’s about status,” said Renault CEO Carlos Ghosn.

But Europe’s car industry is finding it harder to recover from the collapse of the car market in 2008 than some of their rivals in the U.S. and Asia. Europeans are buying fewer new cars as their economies grow weakly, or not at all.

New car registrations in Europe dropped 8.5 percent in January - more than anyone was expecting - and that is on top of a decline of 7.8 percent overall last year to 12.5 million units.

Even bedrock Germany, the engine of Europe, was suffering: sales were down 9 percent in January and 10 percent in February, putting Europe’s largest economy and home to some of the continent’s most important mass market below the 3 million mark.

Auto executives are split over when the European car market will bounce back - or whether it will happen at all. Ford Europe’s Stephen Odell and Renault’s Ghosn put it at least three years out.

Slow recovery curve

Ford Europe CEO Stephen Odell says the uncertain Italian election results possibly didn’t help the European car market but he still expects some recovery this year. Odell says Ford Europe was sticking to its target to break even in 2015. Ford will have a lineup with 40 percent new products this year, and it will cut production capacity by a steep 18 percent, or 355,000 units, by the end of 2014. “We are in for a slow recovery curve,” Odell said.

But Fiat and Chrysler CEO Sergio Marchionne expects a turnaround as soon as next year but a lot of it depends on the political resolve of the Europeans to find a way out of the quagmire. He said the fact that other executives remain pessimistic means that there was too much idle factory floor space.

In the last year, Ford Europe has begun union talks to shutter factories in Britain and Belgium to reduce capacity 18 percent, or 355,000 vehicles, by the end of next year. PSA Peugeot has announced it would cut some 8,000 jobs and close one factory, despite government and union resistance. And companies from Toyota Europe to Fiat are shifting their manufacturing footprint to better capture demand.

But unless European consumers start buying again, the industry remains on a collision course.

Marchionne calculates that Europe’s four biggest automakers - Ford, PSA Peugeot, Fiat and General Motors - made a combined operating loss of $7 billion in 2012. The automakers’ global operations have been, in effect, subsidizing the European losses.