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Wednesday, 12 September, 2001, 17:19 GMT 18:19 UK
Car makers hope for Frankfurt boost
The press converges on David Coulthard
Nice car, but how are your shares performing?
By BBC News Online's James Arnold

For the car industry, a motor show is usually an excuse to lay on the razzmatazz.

An Alfa-Romeo stand
Car makers just want to be noticed
The biennial Frankfurt Motor Show, which gets under way on Thursday, is likely to see the swagger reach a new pitch, with manufacturers unveiling a total of 57 new car models.

But the glitter cannot disguise deep disquiet at the heart of the industry.

Car makers are in the throes of painful restructuring, in an effort to deal with the excess capacity they have built up over the past couple of booming decades.

Now, as economies slow around the world, some manufacturers are suffering acute problems - and so are their share prices.

Problems, problems

A number of the car industry's biggest names have come to Frankfurt with nasty issues to resolve.

Bernd Pischetsrieder and Ferdinand Piech of VW
VW's top two face a strategic shift
DaimlerChrysler is looking for ways to return its American unit to profit, as it struggles to cope with the after-effects of its 1998 merger - a merger that some say was misguided from the start.

General Motors (GM), already enduring slowing sales in its core US market, is planning major restructuring at Opel, its German unit, which has proved barely able to compete with its nimbler European rivals.

Ford, GM's main US rival, is similarly slimming down, and has completely rejigged its European offering over the past few months.

Volkswagen, in recent years arguably the most successful of the big car makers, is facing a strategic shift next year when Bernd Pischetsrieder takes the reins as chief executive, replacing Ferdinand Piech, the most respected automotive boss in the business.

And the Japanese giants of the car industry - in particular Toyota, Honda and Mitsubishi - are desperately gloomy about their prospects of meeting even modest performance targets, as the Japanese market grinds to a halt.

Slumping sales

Pushing through restructuring programmes at such corporate behemoths would be tricky enough at the best of times.

A buyer tests out a new Porsche
But can I afford it?
Times are about to get harder, however.

So far, most of the more tightly-run car giants - Volkswagen, for example, or France's Renault - have reported acceptable sales growth.

But car demand is closely correlated with economic growth, and as economies slow down - especially in the key US and European markets - sales are set to slump.

DRI-WEFA, an industry forecasting firm, predicts European car sales will fall by 1.5% this year, and by 2% in 2002.

And that forecast was made before the terrorist attacks in the US cast a pall over already feeble global economic prospects.

The usual remedy for flagging sales in what is increasingly a marketing-driven industry is to launch new models - but that demands a level of investment that few but the biggest firms are in a position to provide.

On the launchpad

That said, this year's motor show is seeing a veritable flood of new product launches.

The new VW Polo
Small is beautiful this year
The keenest jostling is in the two hottest product areas - small vehicles and family-oriented people carriers.

Ford has unveiled a new version of its small European Fiesta model, and Opel has launched a bulky people carrier, the Combo.

VW has rejigged its Polo, and France's Citroen has been promoting its new compact car, the C3.

Other manufacturers, such as Czech Skoda - owned by VW - and Britain's MG Rover, have launched flashier new upmarket models, while luxury car makers including BMW and DaimlerChrysler have brought yet more premium-priced models on stream.

Too much, too soon

Will these and other launches be enough to pull the industry out of its hole?

Franz Beckenbauer slices a car-shaped cake
Car makers all want more slices of the same cake
The markets for small cars and people carriers have become desperately crowded in recent years, and price competition has pushed profit margins down to the bare minimum.

At the same time, development costs for new models are rising, as consumers become ever more demanding about fancy features.

And tougher environmental and safety regulation around the world means even budget models have to be expensively engineered.

This means it is no longer so easy for manufacturers to rush new models to market; some of those that do, such as BMW with its new version of the Mini car, are often forced into embarrassing and pricey product recalls.

At the same time, wary consumers are ever less keen to continually upgrade their vehicles - today's higher-quality cars perform better for longer.

Time for takeovers?

As producers fight for ever more slices of a rapidly diminishing pie, there is the prospect of yet another round of industry mergers.

But car mergers have fallen out of fashion since the DaimlerChrysler tie-up.

Binding together disparate manufacturing operations, combined with often radically different approaches to branding and marketing, has proved a headache for many firms.

VW has hinted that it has been approched by Ford, GM is in the throes of hammering out a deal to buy the bankrupt motor arm of the Korean Daewoo group, and Europe's smaller manufacturers - including BMW and Peugeot-Citroen - are the subject of continual takeover speculation.

By 2003, when the next Frankfurt Motor Show is due, the list of exhibitors could look very different.

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