Europe's carmakers on bumpy road

The new Volkswagen W12 sports car

By CNN's Tammy Oaks

LONDON, England (CNN) -- As the European auto industry suffers from a weakening demand, one of Europe's leading car industry analysts predicts a shaky year ahead for the industry.

Karl Ludvigsen, chairman of automotive consultant Ludvigsen Associates (UK) Limited, told CNN that demand was static so it could be up to 12 months before any upsurge was seen.

In the intervening 12 months he predicted job losses and plant closures across Europe but added luxury cars could maintain profits on sales to the U.S..

While the September 11 attacks on the U.S. affected people's job security, making them less likely to make expensive purchases, Europe's markets also face tougher competition.

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Japan and South Korea are also taking traditional customers from European carmakers with trendier models in an image-conscious industry where customers will not buy if they do not like what they see.

"Toyota's new Corolla will upset a lot of carmakers in Europe. Toyota has developed a real knack for developing cars Europeans like," Ludvigsen said.

But Brian Taylor, independent automotive consultant, told CNN: "The efficiency in European cars is getting better. The car industry is truly global and there are winners and losers at all times. The process is cyclical."

He added that in a recession, cars -- the second most expensive purchase most people make after their home -- tend to take a back seat. So instead of buying new vehicles many people will choose second-hand or nearly new.

Overall, Ludvigsen said the year was not going to be devastating to Europe's auto industry and there was still a chance for reasonable money to be made, especially for German companies such as Volkswagen AG, which upheld its profit forecast in the wake of a global economic slowdown.

VW said on Tuesday its third-quarter net profit jumped 24 percent and vehicle sales remained on track for a slight rise this year in the wake of an economic slowdown.

But Ludvigsen said it was not an accurate predictor of market conditions due to excess capacity. Instead, the market will only show its true colours early next year.

Ludvigsen predicted Ford would close plants in the next year, and Fiat would try to pull back to its home plant in Turin, Italy.

But the news was not all bad for Fiat, whose new Stilo is set to be a big hit for the Italian company.

The components industry, which accounts for 60 percent of each car made, will also be affected across Europe, but Ludvigsen said the industry was accustomed to the ebb and flow of the market and should survive the uncertainty.

On the upswing, however, Taylor said if people did stop buying new cars, the service and repair industry would have a chance to grow.

Although Ludvigsen was not hugely hopeful for 2002, he believed the demand would revive by this time next year to boost the industry.

"European automotive customers are product-sensitive. They want to know who has launched what and when. Fresh models will stimulate the market," he said.

But Taylor believed the car industry may be in for a long haul. After all, he said, it took almost a decade for the UK to come out of the 1990s recession that collapsed new car sales by one third.

"What we might see happen is an increase in leasing, which was not an option for private use in the early 1990s recession, where people can get out of a car and into another one for the same, if not less, monthly payment," Taylor said.

Ludvigsen thinks there is a lesson to be learned in the declining sales that will serve the industry well in the future.

"Europe needs this downturn as a reminder it must be more efficient," Ludvigsen said.