As 2006 drew to a close, the map of Europe looked the same as it did in 2005.
But a tide of socio-economic change steadily gathered strength and carried with it investment windfalls that expanded eastward the borders of Europeâ€™s auto industry.
Franceâ€™sPeugeot Citroen embodied this shift, in microcosm.
In mid-second quarter, the auto maker opened its first wholly owned plant in Eastern Europe â€“ a â‚¬700 million ($880 million) site in Trnava, Slovakia, to accommodate production of Peugeotâ€™s all-important 207 sedan.
In September, a second production shift was added. And the following month,â€™s Jean-Martin Folz heaped praise on the project for meeting â€śall our objectivesâ€ť and announced the auto maker was studying a move to expand further east.
â€śWe are exploring different types of solutions to produce cars in Russia,â€ť he said.
Some auto makers did not stop there as Italyâ€™sAutomobiles SpA, arguably Europeâ€™s turnaround success story of the year, announced joint ventures with China-based Automobile Co. Ltd. and Motors Ltd. of India.
In October,signed a memorandum of understanding that would see supply 1.6L and 1.8L gasoline engines for application in Fiat cars sold in China and elsewhere.
Two months later, the Italian auto maker inked a landmark agreement withto accommodate production of Fiat and Tata vehicles at Fiatâ€™s plant in Ranjangaon, Maharashtra.
â€śThis is a strategic partnership which is evolving,â€ť Fiat Group CEO Sergio Marchionne said of the Tata tie-up. But the remark could have applied to any of several similar agreements negotiated by Fiat.
Maturing economies east of Europeâ€™s traditional core, along with growing labor-cost disparity, contributed mightily to this change in climate.
Western Europe Sales Rose 1.3%
Western Europe â€“ Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the U.K. â€“ enjoyed a modest 1.3% growth in light vehicle sales, according to Wardâ€™s data.
Meanwhile, the Baltic states of Latvia, Lithuania and Estonia saw new car demand in 2006 rise by 52%, 33% and 29%, respectively, according to a report by Global Insight Inc.
And the European Union was poised to expand to 27 member nations on Jan. 1, 2007 â€“ bolstered by Romania and Bulgaria. Global Insight said those countries enjoyed auto sales jumps of 19% and 23%, respectively.
This increased buying power was fueled by an expansion of Europeâ€™s manufacturing base which stemmed, in part, from improving worker skill levels and â€śbenignâ€ť labor unions, according to another study by PricewaterhouseCoopers.
It described the quality of the workforce in Eastern and Central Europe as â€śvery high,â€ť and therein was a â€ślarge pool of factory operatives skilled in metal cutting, bending, welding, plastics, tooling, assembly and finishing.â€ť
Most were under the age of 35 and proficient in English. Other languages commonly spoken included German, French, Italian, Spanish and Russian.
However, the â€śsingle biggest reason for migrating to Central and Eastern Europe is the potential labor savings,â€ť the consulting firm said, adding the average monthly labor cost in the core EU states was $3,658.
In Romania, this figure was $402, while in Bulgaria, it was $219.
â€śEven in Slovenia, which has the highest wages in the region, the average is still only 42.7% of (the EU states),â€ť PricewaterhouseCoopers said. This translates to $1,562.
This disparity was not lost on labor unions, whose response indicated they intend to be something other than â€śbenignâ€ť in the emerging economies.
â€śWe are fighting very, very hard to strengthen the trade union movement in countries like Slovakia,â€ť said Marcello Malentacchi, general secretary of the International Metalworkers Federation, an umbrella organization for dominant European auto industry unions such as IG Metall and Amicus.
â€śThe level of unionization in the eastern countries is often higher than in the western countries,â€ť Malentacchi told Wardâ€™s. â€śBut obviously, please keep in mind they come from a tradition where trade unions were forced on them. So theyâ€™re not necessarily (enthusiastic).â€ť
However, he added, unions in those regions are becoming â€śmore and more active.â€ť
Eurozone Grew 2.7%
Against a backdrop that saw the entire Eurozoneâ€™s economy grow by just over 2.7%, its best performance since 2000, auto makers it seemed, were no less active. In 2006, Europeâ€™s two largest auto makers â€“AG and PSA â€“ saw their respective leadership structures get overhauled.
Meanwhile,AG saw a change at the top while Marchionne revealed he would appoint his successor â€“ on the automotive side of Fiatâ€™s business â€“ sometime in 2007.
Despite VWâ€™s improving fortunes, behind-the-scenes conflicts contributed to the ouster of CEO Bernd Pischetsrieder. Effective Jan. 1, 2007, his job was scheduled to go to Martin Winterkorn, a protege of VW Chairman Ferdinand Piech who also led the auto makerâ€™s Audi operations to record achievements in 2006.
Similarly, PSAâ€™s Folz announced in September that he would step down. The auto makerâ€™s supervisory board, where six of the 12 seats were held by the Peugeot family, selected Christian Streiff as Folzâ€™s successor.
An auto industry outsider, Streiffâ€™s career was highlighted by a lengthy tenure at the helm of glass-maker St. Gobain and a shorter stint as CEO of Airbus.
â€śThe arrival of Streiff symbolizes the need for radical changes at PSA,â€ť according to a report by Global Insight. â€śAfter a successful period that peaked in 2002 when the car makerâ€™s model line was on average less than four years old, the fortunes of PSA have deteriorated swiftly, in line with falling sales in Western Europe and a rapidly aging model range.â€ť
Noting that disappointing sales of key products such as the 1007 and 407 led the auto maker to issue profit warnings, the report added: â€śThe company faces new challenges and needs a new strategy.â€ť
PSA earned â‚¬800 million ($1.04 billion) in 2006, down 1.4% from 2005.
Worldwide, PSAâ€™s sales declined slightly by 0.7% to 3.37 million units, the auto maker reported. Its sales in international markets rose 4%, against a 2.7% decline in Western Europe.
The redesigned Peugeot 207, introduced in April, exceeded by 8,000 the auto makerâ€™s first-year target of 300,000 unit sales. Total sales of the brandâ€™s entire compact-car lineup â€“ the 107, 206, 207 and 1007 â€“ rose nearly 20% in 2006.
October saw the successful launch of Citroenâ€™s small people-mover, the C4 Picasso. More than 24,000 units were sold, boosting sales of the brandâ€™s mid-range MPV lineup by more than 11%.
Benefiting from the second-half introductions of the new-generation Peugeot Boxer and CitroĂ«n Relay, the auto maker led the European light commercial vehicle market.
The Boxer shared its platform with the Fiat Ducato â€“ the result of a longstanding joint venture between PSA and Fiat Auto SpA. The models introduced in 2006 represented the third generation of those vehicles, assembled at the Sevel Sur JV factory in Italy.
For Fiat, 2006 marked a key chapter in its ongoing turnaround by recording its first profit since 2000. The auto maker reported a trading profit of â‚¬291 million ($378.4 million), a â‚¬572 million ($743 million) swing from 2005 when it lost â‚¬281 million ($365 million).
The auto maker benefited heavily from the Grande Puntoâ€™s first full year of sales.
Fiat also made headlines with plans to renew its Alfa Romeo brand. The 450-hp 8C Competizione sports car, partially engineered by Maserati, debuted at the Paris auto show along with plans to sell the â‚¬135,000 ($171,000) vehicle in 2007.
â€śYou need a car like this to make people aware of the fact (Alfa offers) a huge amount of technical know-how and engineering know-how,â€ť Marchionne said.
Arguably, the auto makerâ€™s most important unveiling in 2006 involved a new Fiat logo, which featured elongated white letters against a red background. Encased in a round, chrome frame, it had a three-dimensional appearance that suggested â€śItalian design, dynamism and a strong personality,â€ť the auto maker explained.
â€śWe have decided to acknowledge the progress achieved so far, by changing our logo, as a tangible sign of the new impetus that is projecting us towards future challenges,â€ť said Luca De Meo, Fiat brand president. â€śThis is why the new logo will make its debut (in 2007) on the front of the new Bravo, before being gradually adopted on all Fiat models.â€ť
New Head at
At BMW AG, Management Board Chairman Helmut Panke went out on top, stepping down from his post in favor of Norbert Reinhofer as the luxury vehicle maker recorded its â€śmost successful year ever.â€ť
Pre-tax profit topped the â‚¬4-billion mark for the first time in 2006 at â‚¬4.1 billion â€“ an increase of 25.5% over 2005. Net profit was â‚¬2.9 billion, which was 28.4% better than the previous year.
Margins could have been higher if not for the rising cost of oil and other materials, the auto maker suggested in its annual report.
â€śThe price of precious metals has been rising for several years,â€ť the report said. â€śDuring the first half of 2006, pace of increase accelerated even faster in some cases. Market prices dipped a little during the summer months before stabilizing at a high level towards the end of the year.â€ť
Factoring in sales of its Rolls-Royce and Mini-brand cars, BMW sold a total of 1.4 million vehicles in 2006, 3.5% more than it sold the previous year. And because nearly 1.2 million units of the 2006 total bore the black-and-blue propeller badge of its core brand, BMW claimed the title of worldâ€™s top-selling luxury car brand.
Spearheading BMWâ€™s market push were the 1-Series, with nearly 152,000 deliveries, and the 3-Series. The latter line was highlighted by the 2006 debut of the 3-Series coupe, powered by BMWâ€™s first turbocharged engine since the introduction of the 745i sedan in 1981.
The 335i coupe served as the initial application for BMWâ€™s N54-model 3.0L twin-turbo I-6. The 300-hp mill had a combined city/highway fuel-economy rating of 24.5 mpg (9.6 L/100 km), thanks to its 6-speed Steptronic automatic transmission and direct injection from piezohydraulic fuel injectors.
BMW also noted a spike in diesel-powered cars. In 2006, 40% of its cars boasted diesel mills, up from 39% and 34% in 2005 and 2004, respectively.
In Portugal, 91% of all new BMW vehicles featured diesel engines.
Pushing the technology envelope further, BMW rolled out a test fleet of 100 V-12-equipped 7-Series sedans that could run on gasoline or liquid hydrogen. The H7 was destined for a hand-picked group of customers in London, Berlin, Frankfurt, Milan, Los Angeles and Washington D.C., Beijing and Shanghai.
This advanced experiment complemented a European Commission draft proposal, published in July, which advocated the accelerated introduction of zero-emission, hydrogen-powered vehicles.
â€śHydrogen propulsion will reduce the emission of greenhouse gases and improve air quality in Europe,â€ť said Commission Vice-President GĂĽnter Verheugen, who also is responsible for enterprise and industry policy. â€śThe market introduction of such vehicles, thus, could entail a boost for Europeâ€™s competitiveness and a significant improvement to the environment.â€ť
Suffering from a production slow-down to accommodate the introduction of a redesigned â€™07 Mini Cooper, the sporty small car racked up sales of just 188,000 units.
But Rolls-Royce claimed to be the â€śmost successful motor vehicleâ€ť in the ultra-luxury segment with 805 deliveries worldwide.
AtSA, CEO Carlos Ghosn was distracted by an exercise to explore an alliance with Corp. After spending 10 weeks evaluating the proposition put forward by GM shareholder Kirk Kerkorian, Ghosn declared â€śthe timing isnâ€™t rightâ€ť for such a move.
â€śIt was clear that our shareholders were worried about it, and Iâ€™m sensitive to that,â€ť he said. â€śTheir concern was they didnâ€™t want us to stretch ourselves too thin. My job is to create value for our stakeholders, so we (talked to GM). It didnâ€™t go through. Fine. I learned a lot. Next time we talk (with another auto maker) it will be at a moment when weâ€™re sure it is what our shareholders want. (But) today is not the right moment.â€ť
Ghosn instead re-dedicated himself to â€śCommitment 2009,â€ť which calls for the auto maker to enter new 13 market segments and increase vehicle sales by 800,000 units by 2010.
Until that plan is realized, there is â€śno chanceâ€ť of adding taking on another partner, he said.
Renaultâ€™s 2006 net income, not counting contributions from its stakes inMotor Co. Ltd. and Volvo, fell to â‚¬2.9 billion euros ($3.9 billion) from â‚¬3.5 billion ($4.7 billion) in 2005.
The auto makerâ€™s key product instructions in 2006 included the entry-level Logan MCV, which launched in the fall, and the Twingo concept vehicle. Both were unveiled at the Paris auto show.
Citing growth in places such as China and the Middle East, Porsche AG enjoyed a net income of â‚¬1.4 billion ($1.9 billion), up from â‚¬779 million ($1 billion) in 2005.
â€ś(International markets) account for 13% of deliveries to customers and have thus become a veritable pillar for Porscheâ€™s business,â€ť the auto maker said. â€śDependence on the German home market, which accounted for only 15%, and the North American market (39%), continues to fall.â€ť
Porsche attributed its success, in part, to demand for the all-wheel-drive versions of its 911 model, along with the new 911 Turbo.
â€śWith 33,088 units, we have never sold as many 911 models,â€ť the auto maker said. â€śIn many markets, the 911 dominates (its segment).â€ť
The same was true of the Porsche Cayenne SUV, though the entry-level Boxster was said to â€śhold its ownâ€ť in a highly competitive segment.
Emissions Rules Tightened
Meanwhile, the EC finished the year on a high note by ratcheting up its emissions requirements for nitrogen oxides (NOx) and particulates. Effective Sept. 1, 2009, the new standards (known as Euro 5 and 6) will require an 80% reduction in the particulate emissions from diesel-powered cars.
â€śThis makes the introduction of particle filters for diesel cars obligatory,â€ť the EC said.
Euro 6 will significantly lower NOx emission limits to 68% below 2006 levels, effective in 2014.
â€śThe Euro 5 and 6 regulation is important for improving the environmental performance of vehicles,â€ť Verheugen said. â€śAt the same time, it will not hamper the competitiveness of the EUâ€™s car industry. It can count on a reasonable lead time to properly plan for and react to these requirements.â€ť
In addition, standardized test procedures for measuring emissions from heavy-duty vehicles and on on-board diagnostic systems were approved in 2006. The aim of this measure, the EC said, was to â€śensure that real-life emissions conditions are better reflected in testing procedures.â€ť
On the manufacturing front, Magna Steyr Fahrzeugtechnik AG & Co. KG grabbed the spotlight by winning J.D. Powerâ€™s Gold Award for quality. The Magna International Inc. subsidiaryâ€™s assembly plant in Austria was rated tops in Europe.