Europe’s motor car business is rapidly running out of road

Author: By Simon Evans

BMW, the luxury German marque, saw its sales slump by more than 4 per cent in October. Group sales at Renault fell by nearly 10 per cent while its French rival, Peugeot, saw sales clipped by more than 4 per cent over the month. The list goes on and on ? nobody has been immune from the claws of the bear.

Sales of new cars in Britain during October fell by 23 per cent, it was revealed last week. In Italy, sales slumped by nearly 20 per cent, while in Germany the figure is thought to be around 10 per cent. Spare a thought for the Spanish ? sales during October collapsed by nearly 40 per cent.

Such dire numbers have forced car companies to instigate radical cost cutting programmes with thousands of workers being made redundant and production being slashed across the Continent. Some have cut production by as much as 30 per cent.

Volvo has indicated that 2,000 jobs at the company will go; Jaguar is extending its voluntary redundancy programme to more than 600 workers; the parts manufacturer GKN is slashing 1,400 jobs in Britain; while 750 temporary workers at Volkswagen in Germany will lose their jobs at the end of the year.

Daimler, Opel and Porsche have all cut production in Germany and Nissan has slashed production at its South Shields plant in Tyne and Wear. Toyota has cut output in Derbyshire. Skoda, owned by Volkswagen, is slashing output by 18,000 vehicles at its Czech operation, while Honda is cutting 10 per cent of its production in the UK.

So how bad will things get? Opinions are polarised.

Professor Garel Rhys of the Cardiff Business School sits at the bearish end of the spectrum, predicting a five-year slump. These recent figures “are a harbinger of things to come,” he said. “Demand is about wealth and confidence, and at a time of recession, both go south.”

John Buckland, autos analyst at MF Global in London, is predicting a recovery by 2011 although he expects declines in 2009 could be precipitous.

“A five-year slump in the sector would be truly unprecedented,” says Mr Buckland. “It’s not like the car market has come off the kind of highs we’ve seen in property. We are seeing some truly huge production cuts at the moment, but the industry has largely been slow to react to the downturn in demand. Whether these cuts are enough wholly depends upon demand. I think we are going to see further cuts being made in 2009.”

If the vicious circle of a lack of available credit, higher unemployment and dwindling demand hitting the industry isn’t bad enough, Europe’s motor manufacturers also have to meet strict new emission standards. The bill for something like that is likely to cost companies billions of euros.

It’s little wonder that European Union officials are drawing up plans to offer carmakers as much as ?40bn ( £32.5m) in cheap loans, mimicking a similar $25bn plan being mooted in the US. Critics suggest that the plan would be tantamount to state aid through the back door ? an industry bailout rather than a green loan.

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