Screws tighten on European automakers, including in Turkey

March 04, 2012, Sunday/ 15:18:00

As automakers prepare to roll out new models this week at the Geneva Auto Show -- one of the major events on the automotive calendar -- they are being forced to fight for a slice of an ever-shrinking European market stricken by austerity and recession.

On top of this, carmakers are also having to confront the uncomfortable fact that a large number of their production lines are lying idle and eating up valuable funds. Industry executives, including Fiat and Chrysler chief executive Sergio Marchionne, have estimated that Europe's car industry has the production capacity to build 20 percent more vehicles than they are currently able to sell, an imbalance that hurts both their ability to compete and bottom line, especially as European sales tumble.

This problem of overcapacity and underused factories is one that automakers have long lamented but can no longer ignore. Fiat, PSA Peugeot Citroen, Opel, Renault and Ford Europe all are losing money in Europe -- even when sales in emerging economies such as China help keep the companies in the black.

Cars sales in Europe this year are forecast to decline by nearly 5 percent to 12.9 million units, according to the Center for Automotive Research -- down from 15.7 million in 2000. Sales in Turkey had already started to drop in the third quarter last year and declined by 11.75 percent in the last quarter according to northwestern province of Bursa-based Automotive Distributors' Association (ODD) data. Automobile sales declined by a further 34.2 percent in January, compared to the same month of 2011, the association said on Feb.7.

European auto demand has dried up as consumer confidence buckles under the pressure of government austerity measures, rising and persistent unemployment and the deepening of southern Europe's recession. In addition, most of the pent-up demand was taken out of the market during "cash-for-clunkers" incentives that governments introduced to help automakers in the 2008 financial crisis. The countries with the biggest number of idle production lines are France, Italy and Spain.

The decline in Turkey is, however, mostly attributed to the rise of interest rates on loans and the cold weather conditions that might have affected consumer interest in purchasing automobiles. The government's move to increase the private consumption tax (ÖTV) on certain products, including cars, late last year is also responsible for the slowdown in car sales, experts say. The sales are expected to range between 775,000 and 825,000 vehicles in 2012, whereas last year the producers were able to sell nearly 1 million units. There are 936 authorized dealers in Turkey, selling 52 brands and employing 70,000 personnel in the country.

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