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Tuesday, 15 January, 2002, 16:06 GMT
Squeeze ahead for Europe's car market
Volkswagen Beetle
December's European car-buying bubble may end
By BBC News Online's Jorn Madslien

European car prices are set to fall, and the large price differences, seen both within the eurozone and within Europe at large, are set to shrink or disappear.


BMW has moved on from the negative 'yuppy' envy provoking connotations that haunted the brand in the late 1980s - think the movie 'Wall Street' - to become a widely recognized mark of achievement

Stephen Reitman
Merrill Lynch
Supermarkets and internet retailers are gearing up for a massive onslaught on a potentially massive market ahead of anticipated moves by the European Commission (EC).

The EC wants to change forever the way cars are bought and sold by liberating the rigid system of national dealers chosen by the car makers.

According to the online car dealer Jamjar.com's Justin Skinner, this is good news for drivers.

Predictably, perhaps: In an interview with BBC News he insisted that "the internet is actually providing greater choice for customers".

Hook, line and sinker?

So 2002 should bring cheaper cars, in a more transparent market.

BMW launches its luxury cars in China
Luxurious BMWs are enjoying success across the world
This would coincide with historically low interest rates - which make car financing cheaper.

As well as with historically low oil prices - which make motoring cheaper.

And yet, Europe's drivers are expected to prove extremely hard to catch.

Car industry analysts predict that car sales will fall by between 3% and 8% during the year.

While car makers' profits will be under even greater pressure than they were during 2001.

Inflated sales

What a difference a few weeks make.

The European car industry ended last year with a bang.

Car assembly line
The pressure to make car manufacturing cheaper is growing

Against all odds, sales soared during December, as consumer confidence recovered from the 11 September shock, and as interest rates continued to slide across the world.

"The final quarter of the year exceeded all expectations," said John Lawson, automotive industry analyst with Schroder Salomon Smith Barney.

"2001 was really quite a positive surprise.

"It had been assumed that after the events of September; the big drop-off in consumer confidence would have seen a drop-off in the vehicle market," he told BBC News Online.

Instead, the global economic downturn was widely ignored as Europe's drivers headed for the salesrooms to take advantage of the latest deals on offer.

Gloomy outlook

But it is unlikely to last.

Western European car registration, December 2001
(% change from December 2000):
All brands: 886,597
+0.7+
BMW: 37,576
+20.5%
PSA: 134,956
+12.8%
Renault: 96,250: +6.2%
Fiat: 75,519
+3.8%
MG Rover: 11,491
+2.3%
Ford: 94,050
+1.1%
GM: 94,847
+0.6%
DaimlerChrysler: 56,898
-1.2%
Volkswagen: 171,397
-5.3%

Source: European Automobile Manufacturers Association

"For 2002 we are really a lot less sanguine," said Mr Lawson.

Last year's near record sales figures were vastly inflated, "heavily stimulated by manufacturers seeking to meet end-year sales targets", according to the industry analysts, JD Power.

Sales soared as a consequence, especially in the UK and Italy where new records were reached.

"2001 did not beat the 1999 record, but was the second-best year ever for the West European car market," JD Power said.

However, "the Italian magazine Quattroroute recently commented that if the Italian car market were subject to the same drugs test as an athlete, illegal amounts of nandrolone would be found", JD Power analysts wrote in an article published by Just-Auto.com.

The car industry website's editor, David Leggett, pointed out that: "For the manufacturers, actually making money turned out to be even more difficult."

"They can have the volume, but if they do it via discounting, via lower prices, than the effect is to reduce [profit] margins," he told BBC News Online.

Luxury and diesel

Makers of high-volume cars have had to fight the hardest in this tough market, Mr Leggett said.

And this year, like last, companies like Renault, Fiat, Ford Europe and GM Europe are expected to have a tough time.

But other European car makers - most notably the high-end car maker BMW or auto firms with a strong selection of diesel cars - have remained aloof, unfazed by the slashing of costs and jobs by high-volume manufacturers.

"The diesel car market in Europe has been booming even while the rest of Europe's car market has been rather stagnant over the last couple of years," Mr Lawson said.

This was good news for diesel car makers such as Volkswagen and Peugeot.

But BMW's track record for 2001 will be hard to match.

With sales in December 20% up compared with a year earlier, the German car maker's market share rose from 3.5% to 4.2%.

"BMW has moved on from the negative 'yuppy' envy provoking connotations that haunted the brand in the late 1980s - think the movie 'Wall Street' - to become a widely recognized mark of achievement," according to Merrill Lynch automotive analyst Stephen Reitman.

Geographical differences

Within Europe, there were geographical differences as well.

The UK and Italy enjoyed booming sales while in Germany car sales actually slipped during 2001.

In this sense, the car market could be seen as a barometer of economic performance at large, analysts said.

For key to car sales is a healthy economy. And vice versa.

 WATCH/LISTEN
 ON THIS STORY
Automotive analyst John Lawson
2001 sales exceeded expectations
Car industry writer David Leggett
It is hard for car companies to make profits
BBC News' Dominic Di-Natale
Europe's car markets will be liberalised
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