BBC News

Motor industry limps into Paris

By Jorn Madslien
Business reporter, BBC News

image captionThe motor industry is suffering from a sharp fall in European car sales after last year's figures were bolstered by scrappage schemes

More than 50 world premieres are set to be unveiled this week as Europe's motor industry gathers in Paris for this year's largest motor show.

But the party atmosphere belies deep concerns as the show comes at a time when sales in Europe are weak and overcapacity is posing a serious problem.

The recession may well be coming to an end in Europe, but car sales have been much slower so far this year than it was in 2009, when sales were bolstered by scrappage schemes and other incentives paid for by tax payers.

Earlier this month, the Brussels-based European Automobile Manufacturers' Association said car sales in the European Union (EU) had fallen to just more than nine million vehicles, a 3.5% drop this year so far when compared with the same period a year ago.

The pain, it said, had been particularly acute during summer, according to data released a couple of weeks ago. Sales fell 18.6% in July and 12.9% in August when compared with the same months a year ago.

Mixed performance

image captionMore than 50 new models will be unveiled at the show

Carmaker Ford predicts that no more than 14.5 million vehicles will be sold during the year as a whole, sharply down on last year's 15.9 million vehicles.

Ford has already felt the pain, its sales having fallen by about a fifth in August, compared with a year earlier.

Similar falls were seen at Toyota and Opel - including Vauxhall, while Fiat fared even worse. PSA Peugeot Citroen, Renault and Volkswagen did better, but they too saw sales fall.

But the overall weakness in the market belies the relative strength of the German luxury car makers Audi, BMW and Mercedes, which fared much better in August. Audi sales rose 3%, BMW sales fell 6.2% while Daimler reported a 2.7% fall when compared with August 2009.

Economic barometer

Luxury car makers did not benefit much from the scrappage schemes, under which people were paid to scrap old cars when buying new ones, so their sales growth could be seen as a better barometer of the real, underlying economy.

But equally, weakness in the mass market for cars could be seen as a reflection of how ordinary people, who fear for their jobs and are seeing their pay packets shrink, are holding back on big purchases.

By contrast, strong luxury car sales reflect how the wealthy are faced with very low interest rates and a very uncertain investment environment, with many seemingly happy to spend their cash rather than seeing it eroded by inflation.

European factories

Weak car sales in Europe could soon result in job losses as the industry finally gets around to deal with its excess production capacity.

During the recession, many factories cut back working hours or axed their workforces, but not a single factory was actually closed.

This could soon change as Opel might close its factory in Antwerp, Belgium, and Fiat mulls the closure of its plant in Sicily, with other firms closing production lines.

But such looming threats to jobs in Europe are balanced by inward investment into the region, including Nissan's plan to produce the Leaf electric car in the UK and Toyota investing in hybrid production in the UK and France.