European car industry moves up a gear

A Mercedes on the production line

By Paul Sussman CNN.com writer

LONDON, England (CNN) -- A series of strong profit figures for Europe's carmakers has increased speculation that the industry is moving into the fastlane.

Europe's fortunes contrast with hard times in the U.S., where American manufacturers are feeling the pinch and European exporters are finding new customers.

In terms of sales, there has been an increase in exports -- especially to North America -- and in the number of motorists wanting diesel and top-of-the range vehicles.

But this is balanced by a sluggish demand from within Europe and a downturn in sales of mass-market, gasoline-driven cars.

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The mood is gloomy in the U.S. General Motors, the world's biggest carmaker, is set to cut production at its plant in Orion Lake, Michigan, by 25 percent.

In Europe, major manufacturers all posted good end of year results for 2000, with Volkswagen leading the way.

The German giant, Europe's largest vehicle maker, saw a record 37.5 percent rise in underlying profits, from DM 4.93 billion ($2.30, 2.52 billion euros) to DM 6.78 billion ($3.15 billion, 3.46 billion euros).

At the same time the company's share price rose three percent, to DM115.20 ($58.83, 58.90 euros), fuelled by burgeoning sales in North America and increased demand for diesel cars in Europe.

Rival companies also enjoyed an impressive upturn in their fortunes. Porsche's half-year profits rose by 13 percent, to $63 million (DM135 million, 69 million euros), while French giant Peugeot-Citreon reported an 80 percent rise in net profit, to $1.25 billion (FF 8.99 billion, 1.37 billion euros).

German-U.S. group Daimler-Chrysler, meanwhile, has seen its share price rise by more than 25 percent this year.

Mercedes, the group's star performer, turned in an annual profit of DM1662.5 ($774.36, 850 million euros).

"There has been a considerable renaissance in the affairs of the European motor industry," Professor Garel Rhys, an automotive expert at Cardiff University, told CNN.com. "They have learnt a lesson from the Japanese."

But there is a down side. The rise in Daimler's share price, and the profits shown by Mercedes, must be set against a group operating loss of DM782 million ($363 million, 400 million euros) in the fourth quarter of 2000.

On Wednesday it emerged that the company is to launch a massive re-structuring programme aimed at resuscitating its ailing Chrysler and Mitsubishi brands, both of which have seen profits tumble.

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"The company is facing a lot of problems," says Rhys. "They are certainly not terminal, but they are bigger than expected."

When you consider that in 1998, following its creation, Daimler-Chrysler's share price stood at DM 219.14 ($101.65, 112.04 euros), its current level seems somewhat less impressive.

"Although diesel sales rose by 11 percent last year, the gasoline market fell by nine percent," said Adam Collins, an industry analyst with Schroder Saloman Smith Barney."

"The overall consensus is that in the coming year sales are going to be pretty flat."

Collins believes that part of the reason the European car industry appears more buoyant than it actually is, is that the American automotive industry is currently experiencing a substantial downturn.

"In terms of the European market we're probably looking at growth of two percent over the next two years, most of it weighted towards the German car market.

"That's pretty modest, although in comparison to the American market, which fell 15 percent last year, it actually looks quite healthy."

The European car industry is certainly holding its own at present. But there are doubters.

"The market is now so competitive that even successful companies like BMW and Mercedes are making a far smaller the premium than they were ten years ago," said Rhys.

"Literally and figuratively it is the consumer who is now in the driving seat."

Daimler to rejig top ranks
February 21, 2001
Porsche, Peugeot rev ahead
February 21, 2001
More job cuts at GM
February 20, 2001

Porsche
Daimler-Chrysler
Volkswagen
Peugeot-Citreon
General Motors

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