While Americans might think first of "fiscal cliff" when talk turns to 2013, for European auto manufacturers the word association is more likely to be "nightmare," "headache," "government bailouts" or even "bankruptcy."
That's because European car sales are likely to be down again in 2013, close to 20 year lows, thanks to the economic recession. The Organisation for Economic Cooperation and Development reckons the 17-nation zone that uses the "euro" common currency will slide by 0.1 percent in 2013, after 2012's 0.4 percent dip, before awakening in 2014 with 1.3 percent growth. And despite Germany, Europe's biggest economy, showing signs of revival, even mighty Volkswagen might not be immune to the pain being suffered by its mass market competitors led by France's Peugeot-Citroen.
Latest data from Germany shows its economy may take a turn for the better in 2013, as the respected IFO business confidence index rose for the second month in a row in December. Business leaders believe this might lead to a rebound in economic growth in the first quarter, despite the Bundesbank projection that the German economy likely contracted by 0.25 percent in the fourth quarter compared with the previous three months. But even if German starts to revive, its exports to flagging economies like France, Spain and Italy won't be setting new records.
Fears that the eurozone would by now have been blown apart by Greece's exit have not materialized, but attempts by European Union governments to cure the problem are viewed as "lipstick on a pig" rather than serious attempts to cure the problem permanently.
CAR's latest research shows sales in Western Europe will slide another 3.4 percent in 2013 to just over 12 million, after falling 7.9 percent in 2012. Forecasters like Citi Research reckon this underestimates the weakness next year and sees a fall of between five and six percent.
CAR data calls for something of a revival in 2014 and 2015, with rallies of 4.5 percent and 3.4 percent. But at the end of next year, car sales in Western Europe will be 3.5 million less than in 2005, and that underlines the biggest problem; over-capacity.
Volkswagen, Europe's biggest car maker with a market share of close to 24 percent, is hugely profitably globally, not least because of the great success in China of its luxury subsidiary Audi. But despite being on the crest of a sales wave, its latest new car the Golf, has needed hefty discounts to persuade buyers to part with cash because of tough market conditions. Usually a new car will command high profit margins, at least until buyers see a few on the roads. Not this time.
Dudenhoeffer also sees manufacturers' finances deteriorating to the point that governments may be forced to step in with assistance. Because of the recession, all the non-German domiciled mass market manufacturers are deep in the red.
Read more: No fiscal cliff for Europe, but auto prospects for 2013 look dire enough - Estes Park Trail-Gazette
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