German luxury car manufacturers have been sailing serenely past the wreckage of Europe’s mainstream industry, but even the likes of BMW, Mercedes and Audi are now finding they can’t fight off contagion from the European financial crisis for ever.
Europe’s mass car makers have reported varying degrees of financial calamity for the first half of 2012, with only Renault of France remaining in the black, just, in Europe. Peugeot-Citroen, also French and in which General Motors has a seven per cent stake, reported a negative operating profit margin of 3.3 per cent, while Fiat of Italy lost 3.7 per cent on every European sale, according to Fitch Ratings. Ford Europe and GM Europe’s Opel-Vauxhall have generated much red ink.
German manufacturers, thanks to prodigious profits from China and with a healthy home market, were supposed to be above this desperate scramble for a profit margin.
Not even the most successful companies can prosper if all markets slide, and now Germany itself is struggling to the point that even the likes of BMW are reportedly being forced to “self-sale” almost 30 per cent of its cars back to its dealers, according to a report from Reuters. The Reuters’ report described this as a controversial sales practice that inflates official statistics and paints a flattering picture of demand.
Meanwhile even official sales data now shows German sales are on the slide, with the market in July dipping five per cent compared with the same period of 2011.
Germany is Europe’s biggest car market, accounting for nearly 25 per cent of total sales. In the first six months of 2012, German sales rose 0.7 per cent to 1.6 million, said Automotive Industry Data.
Perhaps inevitably, not even the most successful car companies can fight this.
“European carmakers profitability and cash flows continue to suffer from falling sales and from the deteriorating pricing environment in Europe, which affects both revenue and earnings and impacts premium and volume manufacturers alike,” said Fitch analyst Emmanuel Bulle.
In a report, Fitch pointed out that after a long period of increasing profits, margins were now falling.
“The operating margin of Volkswagen Group’s four largest automotive brands declined (only) marginally to 6.3 per cent from 6.6 per cent. Daimler AG’s (Mercedes) and BMW’s operating margins decreased, albeit to a still healthy level, to 8.5 per cent and 11.6 per cent, respectively, from 10.0 per cent and 13.3 per cent,” the report said.
With the daily news full of stories about the uncertain future of the euro single currency and talk of massive, almost incomprehensible bailout packages for the likes of Greece, Italy and Spain, Europeans are cutting back to necessities so they can survive any possible economic meltdown. Meanwhile manufacturers of everyday cars as well as luxury sedans are having to slash prices and offer huge discounts.
“While aggressive pricing conditions were mostly a concern for mass-market manufacturers, there is increasing evidence and comments about premium brands also suffering,” said Bulle.