European auto industry winter warning of Chinese car market
author：华亿(中国)官方newstime：2012-08-14
According to reports from France, on August 3, the French government submitted a request to the European Commission to review the regulations regarding the import of cars produced by South Korean manufacturers under the EU-South Korea Free Trade Agreement (effective since July 1, 2011). This request was made because of the significant increase in sales of imported South Korean station wagons in France.
This is not a flattering request, as a car company losing over 200 million euros per month is becoming a new symbol for the French and even the entire European automotive industry.
After being downgraded to “junk” status by Moody’s in March this year, PSA (Peugeot Citroën), Europe’s second-largest car manufacturer, recently announced it would cut 14,000 jobs and close a factory in the suburbs of Paris. Data shows that its automotive division lost 662 million euros in the first half of this year.
PSA's announcement signals a long winter for the entire European automotive industry while also heralding a new wave of conquests in emerging markets like China. Industry experts point out that as a natural result of European and American car companies accelerating their division of the Chinese market, domestic car companies will face greater survival pressure in the coming years.
Crisis in Europe
For the European automotive industry, PSA's closure of its Paris plant is a signal of impending disaster.
In fact, the measures taken by PSA are enough to make one believe that the company's finances have deteriorated significantly.
In a restructuring plan announced in mid-July, PSA revealed that it would close a plant in Aulnay-sous-Bois, in the Seine-Saint-Denis department south of Paris, by 2014. Additionally, the plant in Rennes, western France, will also see layoffs.
As early as November last year, PSA announced the sale of its two car leasing companies to an American car rental company. At the beginning of this year, PSA announced its withdrawal from the Le Mans endurance race and even sold its headquarters building in France. According to the plan, it will also sell shares of its logistics subsidiary Gefco later this year.
Data shows that PSA's group debt increased to 3.4 billion euros in the second half of last year, with excess capacity of at least 20%. To repay the debt, PSA can only continue to sell assets to raise cash.
The sluggish automobile consumption brought about by the European debt crisis has led to a near standstill in the European car market, resulting in excess capacity and increased costs for car companies. According to a report released by the European Automobile Manufacturers Association, in the first half of 2012, the regional market sales were 6.6448 million units, down 6.8% compared to the same period in 2011. Among them, PSA and Renault both saw double-digit declines in sales.
Fiat CEO Sergio Marchionne recently announced that decisions would be made on European restructuring, including halting investment in the Italian market, further closing plants, and temporary layoffs to cut costs. According to statistics, Fiat's operating loss in Europe in the first quarter reached 207 million euros, double the amount in the same period last year. Japanese automaker Mitsubishi resolutely sold its Nedcar plant in the Netherlands for 1 euro.
As Europe's largest car company, Volkswagen chose to resist risks through mergers and acquisitions. On August 1, Volkswagen announced that it would acquire the remaining 50.1% stake in Porsche for 4.49 billion euros plus one common voting share, achieving 100% control of Porsche. "The merger can simultaneously strengthen Volkswagen and Porsche both strategically and financially," said Volkswagen CEO Martin Winterkorn. Porsche's profit margin in the first half of this year was as high as 18.7%, surpassing that of leading luxury carmaker BMW. However, Roland Berger automotive analyst Zhang Junyi pointed out that the short-term effects of this "elephant strategy" would not be too obvious, with greater benefits coming from future product platform sharing between the two companies.
The sluggish European car market has also put existing alliances at risk. On August 3, General Motors stated that if the European financial crisis continues to worsen, it may reduce its 7% stake in PSA. On February 29 this year, GM formed an alliance with PSA. However, GM's Europe business reported a pre-tax loss of $361 million in the second quarter, while it had a profit of $102 million in the same period last year.
According to the latest report from the European Automobile Manufacturers Association (ACEA), the European auto industry is expected to shrink by 7% this year, falling to its lowest level since 1995, a 21% decrease from the peak in 2007.
Pressure Shifting to China
As the domestic market in Europe can no longer support its survival, and the North American market has not fully recovered from the crisis, emerging markets like China, which are still on an upward trajectory, have once again risen in importance.
Daimler Group recently announced its performance for the first half of this year, showing that its luxury brand Mercedes-Benz's global sales in June increased by only 0.9% year-on-year to 121,500 units, and this was still due to strong growth in China, Russia, and the United States. Currently, Mercedes-Benz is facing a tough market environment in Europe, including its home market in Germany. Data shows that the company's sales in Western Europe last month fell by 4.3%, and sales in Germany fell by 2.9%.
The decline in profit margins has also intensified competition among the three major luxury car brands in China. Daimler's Mercedes-Benz division's pre-tax profit margin shrank from 10.7% in the same period last year to 8.6%. BMW's net profit in the second quarter was only 1.277 billion euros, a year-on-year decline of 28.1%. Although Audi's operating profit margin in the first half of this year was 11.5%, almost the same as last year, Audi Group CFO Axel Strotbek also expressed concerns about the car market in the second half of the year.
Just as Shanghai GM became the perfect egg under the cracked nest of the General Motors empire, joint venture car companies in China are becoming the saviors of European car companies. For this reason, although the Chinese car market has also slowed to single-digit growth, European car companies, including PSA, are not stingy with their investments and model introductions in China.
"Multinational car companies will inevitably rely more on the Chinese market," Zhang Junyi pointed out. Compared with Europe, China at least has potential growth, "but for the Chinese market, the pressure will inevitably increase further."
Obviously, the increased investment of multinational car companies in the Chinese market will lead to intensified survival of the fittest. "Those who survive will still be large state-owned enterprises and joint venture car companies, and the survival pressure on independent brands will become greater and greater," said Zhang Junyi. The Chinese car market has clearly slowed down this year, determined by the domestic macroeconomic situation, and it is difficult to recover in a short period. Coupled with the continuous downward pressure on luxury car prices, the market share of independent brands has been continuously shrinking, "therefore, independent brands must seize the time to improve their competitiveness, otherwise, the next few years will be even more difficult."
