As European Car Sales Slide, the Industry Gets Desperate

The European Automobile Manufacturers Association (ACEA) announced that April sales of cars and light trucks in the region were “6.9% less than in the same month of 2011.” That means only 1,017,912 new passenger cars were registered in the European Union during the month. As might be expected, based on the great disparity of GDP growth or contraction, sales in Germany rose 2.9%, while sales in Spain and Greece fell 21.7% and 18.0%, respectively. Regardless of how the numbers break out by nation, the market in the area is in such deep trouble that regional manufacturing results have been crushed and will continue to be. EU results for multinational car companies are and will be poor enough to offset most success in the United States or China. The car sector cannot solve its Europe problem, and that will swamp sales and earnings for a long time to come. All that remains to figure is what each manufacturer will do to try to offset the problem.

Among those firms headquartered in Europe, the worst results were from Fiat (off 11.5% in April) and Renault (down 15.1%). At least Fiat owns the majority of Chrysler, which has surging sales in the U.S. And Renault has a partnership with Nissan that has done well recently. But neither relationship with another manufacturer will solve the basic problem of sluggish sales in Europe. Each company must find a solution. If the industry’s past is any indication, these corporations will have to battle with unions and governments in order to sharply cut employment and production. The industry will look like it did in the U.S. in 2008 and 2009. For Fiat and Renault to balance expenses with sales, they will need to gut parts of their production capacities.

General Motors’ (NYSE: GM) European sales fell 10.9% in April. Results from its flagship Opel/Vauxhall division were down 16.7%. GM has made it clear it will need to slash capacity in Europe and has sent some of its top executives to oversee the process. Unions, and governments in nations where GM has plants, already have said they will strongly oppose the moves. Long strikes and pressure from political officials will make the implementation of GM’s programs very messy. But the world’s largest car company probably has decided already that the turmoil is the only path to solve its EU problem. Renault and Fiat may need to make similar decisions.

The car industry in Europe does look like the one in the U.S. did several years ago. There is an essential difference, though. The American economy recovered from a recession, and people began to replace their cars or become first time buyers. Much of Europe is headed back into recession. The car markets in the area will be troubled for a long time, and there will be violent battles to settle whether manufacturers in Europe can run financially viable operations.

Douglas A. McIntyre