PARIS –AG Chairman Ferdinand Piëch hesitantly delivers his auto industry outlook for 2011, as if a resolute declaration might tempt fate.
“Better than this year,” he says through pursed lips. How much better? “A little bit better,” the grandson of automotive pioneer Ferdinand Porsche, and himself an icon, tells Ward’s during a Paris auto show preview.
Piëch’s reticence mirrors the cautious optimism of a European industry haunted by the recent memory of 2009’s freefall and chastened by the knowledge that gimmickry, not guile, saved the day.
Government-sponsored scrappage programs initiated last year jolted consumers out of their funk and spurred enough market interest to hold the region’s total vehicle sales slide to 11.3%, according to Ward’s data.
European Commission research indicates the programs, which rewarded buyers with rebates for trading up, were responsible for nearly 2.2 million additional sales and saved some 120,000 jobs.
“The scrappage did its job,”Britain Chairman Joseph Greenwell says. “It bridged a very, very difficult period.” But, echoing Piëch’s curt assessment and underscoring the tension level in Europe, he adds: “We’re not back to normal.”
Economic recovery is “the No.1 item that influences car manufacturers,” he tells Ward’s on the sidelines of the Paris auto show.
And the road to recovery appears rocky, at least for the European Union markets that use the euro. Those 16 nations are on track for 1.7% growth this year, on average, and 1.5% in 2011, according to the latest International Monetary Fund forecast.
In contrast, the global economy is expanding by 4.8% this year and 4.2% next, the IMF says. Against this backdrop, debt crises loom in once-vibrant markets such as Ireland, which this month suffered its third credit-rating downgrade in less than 10 days.
Spain is taking a similar hit. But its trials pale beside those of Greece, where coffers are so empty the government is staging an asset fire-sale that has attracted investment promises from China, Libya and Qatar.
True to Greenwell’s observation, new-vehicle sales are following the trend lines for economic growth.
Through August, light-vehicle deliveries in Europe were flat compared with like-2009, according to Ward’s. While all other regions – and the world, in total – saw increases ranging from 4.9% in South America to 38.1% in Asia/Pacific. Even beleaguered North America recorded an 8.2% gain.
Nevertheless, auto makers are putting on a brave face.
“We will see slower growth, but we will see growth,”AG Chairman Dieter Zetsche tells journalists at the Paris show. Less in Europe, more in other markets, he concedes, adding: “China is growing extremely fast.”
The IMF agrees. But it also puts Russia and Eastern Europe on the same footing. Along with China and Latin America, Russia and Eastern Europe each can expect growth in the range of 7.1% this year and 6.4% in 2011. As a result, the once-clear delineation between Western Europe’s “haves” and Eastern Europe’s “have-nots” is blurred.
Audi AG CEO Rupert Stadler tells Ward’s Eastern Europe is integral to the luxury auto maker’s capacity-investment strategy. “We did that in Hungary,” he says, referring to a €900 million ($1.2 billion) outlay at an Audi assembly plant in Gyor.
The move will accommodate production of an A3 derivative set for launch in 2013 and likely destined, predominantly, for export markets such as the U.S.
The plant, already home to TT and A3 Cabriolet production, will add 1,800 jobs to its 5,800-worker payroll, Stadler says. Why Hungary? Superior infrastructure, he says. “And we know the skills of the workers.”
While the labor-cost gap between East and West has been closing, so has the skills gap, he says. Many workers have university degrees. And they speak German. “For us, it’s perfect.”
Do European auto makers have contingency plans for a double-dip recession? Adam Opel GmbH does, but CEO Nick Reilly does not foresee a need to implement it.
With the closure later this year of Opel’s assembly plant in Antwerp, Belgium, the auto maker’s 2-shift capacity utilization rate will hit 110%, Reilly says. In the event of a double-dip, next year, Opel could go to 90% “and still be in fairly good shape.” But “we’re not projecting that.”
Zetsche agrees. “We do not expect a double-dip to happen,” he says.
Key industry leaders such asAutomobile SpA CEO Sergio Marchionne and Wilbur Ross, International Automotive Components Group founder and chairman, have lobbied for a renewal of Europe’s scrappage programs, most of which have expired.
The European Commission study also suggests the programs benefited the environment and traffic safety. Replacing older vehicles with newer ones featuring greener engine technology will have reduced CO2 emissions by nearly 2 million tons (1.8 million t).
On the safety front, scrappage programs also populated Europe’s roads with an additional 1 million cars equipped with passenger airbags, 1.4 million outfitted with antilock brake systems and 1.4 million with electronic stability control.
But Reilly is ambivalent. If scrappage programs return, Opel will participate, he says. “I don’t feel strongly either way. They definitely helped the market in 2009. The market would have been at a disastrously low level, very low level, had we not had several scrappage schemes. But you always get a payback.”
The industry was happy to have to the programs when they arrived, Reilly says. “Now we’re not happy with the payback.”