The IAA Frankfurt Motor Show comes round every two years and it is by far the biggest automotive show in Europe. It is always a showcase for key new model launches for the European market – especially those from the German makers. But as the world’s top auto executives converge on Frankfurt, it also provides a useful platform for the airing of broader concerns facing the carmakers. Dave Leggett and Graeme Roberts went along.
Underlying market gloom
Let’s start with the basics. The automotive industry in Europe has seen better times – much better. Economic growth this year is weak and consumer confidence remains fragile across much of the region. Sales and profits are down; margins are slim and under pressure. In the first eight months of the year, passenger car sales in western Europe stood some 2.2% below the same period of last year.
Many commentators and analysts agree that Europe’s biggest national economy and car market – that of Germany – is the key. But Germany’s economy is bumping along in the face of high unemployment and fragile consumer confidence. The possibility of a damaging Japanese-style price deflation in Germany has been widely discussed among industrialists. To make things worse, industrial confidence in the German car industry has been further damaged as export earnings have been slashed by the appreciation of the euro versus the dollar.
All in all, the market backdrop to Frankfurt in 2003 was not a positive one. 2004 looks like seeing some market improvement as the European economy picks up, consumer demand recovers and new models help to boost replacement demand (notably in Germany). But margins will remain very slim and the level of competition in the European marketplace – especially that provided by the growing presence of the Asian makers – will continue to be intense.
Ford feeling the heat
Some manufacturers are performing better than others of course. Martin Leach’s departure from Ford draws attention to the acute problems facing Ford’s European operations. Ford lost $US773 million, before taxes, in the first half of this year in Europe, including a loss of $525 million in the second quarter as results were hit by lower vehicle prices, heavy competition and currency fluctuations.
Last month Ford President Nick Scheele said that the company will post better results for its European operations in the second half of the year after recording surprisingly weak results in the second quarter. In Frankfurt, he was straight talking. He told journalists that Ford will take whatever actions are necessary in order to ensure that targets are met. If the results continue to look bad in Q3, more drastic measures being discussed could come into play.
Ford will certainly be hoping that the Jaguar X-type estate launched at the show will help the fortunes of its loss-making luxury car-making unit. Diesel engines should help in Europe, but the performance of the X-type model in the US is a concern, along with the scale of Jaguar’s losses.
Schrempp should be hot under the collar
For DaimlerChrysler, financial worries lay mainly on the other side of the Atlantic. Chrysler‘s latest lurch into loss has led to increased speculation that further restructuring measures will become necessary. Chrysler posted a second-quarter operating loss of 948 million euros (Q2 2002: operating profit of 414 million euros) due to lower shipments and increased incentives, including higher provisions for marketing costs related to dealer inventories and for guaranteed residual values. The beleaguered unit has also just said that it will introduce incentives on 2004 model year vehicles.
DaimlerChrysler CEO Jurgen Schrempp said in this week’s Der SPIEGEL magazine that Chrysler has a ‘difficult task’ to reach its revised target of a small operating profit this year. In Frankfurt, Schrempp said however that DaimlerChrysler was on track to meet its operating profit goal this year (five billion euros), despite a tough US market.
But some good news for GM from Fiat…
GM Chairman Rick Wagoner said in Frankfurt that its joint ventures with Fiat Auto were running better than expected and the two companies were looking for other areas to cooperate. Wagoner said the savings from the joint ventures with Fiat were “running well in excess of our initial forecasts,” even though both GM and Fiat are selling fewer vehicles using parts from the ventures than they had planned.
The two companies also have joint ventures in procurement and powertrains that both say are producing big savings.
But Fiat Auto remains deeply financially troubled and that put option and the question of GM capital as part of plans for Fiat Auto’s recapitalisation and revitalisation remains in the air. The current crop of new Fiat Auto models will need to be successful in order to steady the nerves of Fiat’s bankers and its alliance partner GM.
C-segment battle hots up
In terms of their importance to their respective companies, the two most significant Frankfurt launches were the Volkswagen Golf and Opel/Vauxhall Astra. Both compete in Europe’s largest mass-market segment, the lower-medium or C-segment. Next year the competition hots up still further with the arrival of the next generation Ford Focus.
Volkswagen’s incoming chief financial officer said in Frankfurt that the company expected a significant improvement in profit and unit sales next year after launching its latest Golf. VW has been losing share in Europe this year due to late model cycles in key market segments such as that where the Golf is situated.
“We will significantly increase our operating profit in 2004,” CFO designate Hans Dieter Poetsch said in Frankfurt. VW wants to sell at least 600,000 of the new Golf V models next year and says each one will earn it more money than its predecessor. The car traditionally accounts for more than a third of unit sales and around half of profits at the VW brand.
BMW looking at lower earnings for 2003, but better in 2004
BMW said in Frankfurt that its pre-tax profit in 2003 would probably fall slightly below last year’s level, but it was confident that business would be stronger next year. BMW, in the middle of a major new product programme, is striving for flat profits this year, but had previously said this could include a five to 10% deviation either way from last year’s €3.3 billion pre-tax figure. In Frankfurt, BMW unveiled a new 6-series coupe, small X3 sports utility vehicle, and a larger face-lifted X5 at the show. These new models are expected – along with lower product costs – to contribute to higher profits in 2004.
The Asian challenge – Toyota and Hyundai–KIA target Europe
The European OEMs need little reminding that competitive conditions in their ‘home’ market have intensified as the Japanese makers have increased European production and market share in recent years. If that’s not enough, Korea’s emerging global player, Hyundai-Kia, is gaining share also and looking to start production in Europe – most likely at a location in central Europe, but with a strong focus on shipments to western Europe.
It was reported that Toyota aims to boost its European sales by up to 50% by 2010. According to reports, Tadashi Arashima, chief executive officer of Toyota Motor Marketing Europe, said Toyota expects European sales of up to 1.2 million units by 2010 (755,600 units in 2002). That raises the question of how Toyota could increase its European production capacity to achieve that. More investment in Turkey perhaps?
Right on cue, reports emerged that Toyota plans to produce as many as 80,000 vehicles of a new passenger model at its Turkish plant next year. That would take annual production at the Toyota plant in the Turkish city of Adapazari to between 120,000 and 140,000 vehicles in 2004. The plant currently produces the Toyota Corolla model at the rate of around 60,000 units per annum.
Hyundai-Kia underlined its European ambitions in Frankfurt with the unveiling of a new European research and technical centre as well as two all-new concept vehicles. With plans afoot to establish a factory in Europe for the South Korean automaker, the new HQ is an important step forward as it looks to double European sales to 500,000 within the next five years. European sales are currently running at 250,000 a year. HMC is currently the third largest importer into Europe from the Far East behind Toyota and Nissan – and closing fast on second place. A new plant would build B and/or C segment models and most probably Hyundai and Kia brand vehicles.
GM-Daewoo’s long haul
Recovery in GM-Daewoo’s key UK and German markets has been very slow, according to company president Nick Reilly, because the distribution channels in Europe’s two largest markets had gone and had to be rebuilt. Speaking in Frankfurt he predicted that sales in Europe would climb to 150,000, up from 100,000 last year, rising to close to 200,000 by the end of 2004. But GM Daewoo will not see a real increase in its European sales until a new family of diesel engines, some of which are expected to be sourced from sister GM company Opel, come on stream in 2005, said Reilly.
Global sales were well balanced with 2004 forecasts of 600,000 split fairly evenly between the Far East, North America and Europe. In 2002, worldwide sales were just 350,000.
“Our target is a million sales a year, but that is some four years away,” said Reilly.
New passenger car sales – EU and EFTA countries |
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Click on the table to enlarge |
The cars themselves Among the usual stunning line-up of concepts, and new supercars costing well into six figures, was a series of redesigned models playing in mass-market segments. These included General Motors Europe’s new Opel Astra (also in due course to appear with Vauxhall, Holden and Chevrolet badges), Volkswagen’s Golf and Mazda’s 3. Fears that VW may have downgraded its legendary Golf cabin quality appeared unfounded – the redesigned car seems to have the same high standard of materials and well-made switchgear solid to the touch as its popular predecessor. There are numerous detail improvements and equipment upgrades as well as (a little bit) more rear legroom and a larger boot. A nice detail is the giant VW logo on the hatchback which pivots to release the catch, an idea pinched from VW’s group sibling Seat. Having already announced some details of both three and five-door Golfs before the show, VW needed something new to show the hacks and it came in the form of a GTi ‘concept’, which looked pretty production-ready, and far more sporty and aggressive than its predecessor. The show car had a turbocharged two-litre direct injection petrol engine, a nice honeycomb grille and front air intake, huge wheels with low-profile tyres and a sporty interior. In contrast, GME kept three-door hatch, four-door sedan, station wagon, coupe, and convertible derivatives of its new Astra out of sight but the new five-door is another attractive redesign of a long-serving model. From some angles it looks like a scaled down Signum and it has a nicely redone cabin with higher quality materials and an attractive choice of upholstery colours with ‘sporty’ faux aluminium or ‘luxury’ ‘wood’ accents. High-tech stuff such as swivelling headlights and a sophisticated electronically controlled suspension will be offered. We noticed that there’s now only a fuel gauge alongside the speedo and rev counter and wonder if GM is reverting to 1960s-style warning lights for engine overheat. Like VW, Opel is launching a brace of new petrol and diesel engines with its volume seller to cover all sales bases. Mazda showed its Golf/Astra rival – the new 3 – which shares its C1 platform with shareholder Ford’s new Focus C-Max minivan and Volvo’s all-new S40. The wedge-shaped Mazda is another attractive redesign of a long-served model (the 323/Familia/Protege) and looks particularly good in sedan form. European-specification versions of the Hofu, Japan-built cars have a cabin finish that looks less ‘plasticky’ than the Japanese norm and upholstery plus trim materials more in keeping with European tastes. It was hard to get near the new Volvo S40 for the hordes of tape measure-wielding Japanese engineers (just how do these guys get in on what is supposed to be ‘press day’?) minutely examining every interior and exterior component. The scaled-down-S60 look with shortened boot and bonnet makes the car look smaller than it is and the interior design with so-called free-floating centre console was the main lure for rivals’ stylists and engineers. This console, looking like a cross between an IKEA dining chair backrest and a Bang and Olufsen hi-fi system, will be available with an optional clear-view cover so you can see the electronics within – all the connections come in at the top or bottom so there is storage space behind – this is true innovation. Less so, is the other model on the C1 platform – Ford’s C-Max minivan. It might be good to drive, or so we are told by colleagues on the consumer magazines, but it doesn’t set any design or innovation standards and is rather late to the party – Renault’s scenic rival debuted way back in 1997. The redesigned French model, now available with five or seven seats, was also on show and is a very attractive addition to the new Megane line. But the one getting all the attention was the new Megane cabriolet, with folding glass roof. The main roof panel is virtually all glass, with a roll-out sunshade. Renault may bill it a four-seater but the rear chairs are a tight fit for all but children and small adults and boot space, with the roof folded, is miniscule. Nonetheless, it’s beautifully engineered and seems well built. Rival Peugeot, which brought the folding tin-top concept to the masses with the 206, now has a larger one – the new 307 – though, unlike the Megane drop-top, this one’s main roof panel is all-metal. Although pre-production examples were shown at Geneva last March, Frankfurt was where the tiny production Fiat Panda (nee Gringo) and larger Idea minivans took a bow. These are both very attractive and highly versatile small cars, available in a variety of bright exterior and interior colours and with cabins that look and feel of far higher quality than previous small Fiats. There’s no shortage of big car equipment either, with items like air conditioning, power windows and mirrors, six-stack CD players and giant sunroofs all available dependent on model. There’s a good mix of engines including a lively diesel and an automated manual gearbox is on the options list. Fiat may be on the ropes right now, but it must surely have a chance of recovery if it can keep turning out such attractive cars, ideally sized for Europe, as this. Frankfurt was also the debut venue for the Saxo-replacing Citroen C2, another attractive little car with a wide range of engines and big-car equipment items. What caught our eye was the separate upper and lower tailgates instead of a conventional hatchback. There is a fair lift up to the bottom of the opening and a fair drop down to the load floor – not good when hauling heavy stuff. Honda tried this on its 1992-1996 Civic line and the buyers didn’t like it – it’ll be interesting to see what sort of reaction Citroen gets. One other mass model we sought out was Seat’s new minivan or, as its maker puts it, ‘multi sport vehicle (MSV)’. The curvy lines bisected with sharp angles makes this ‘monospace’ one-box design most attractive and we’ll be surprised if much is changed before production, apart from toning down a few gaudy bits of interior trim and installing more practical rear seats. One interesting feature is screen wipers that park vertically, blending in with the windscreen pillars. Will they make production? Some new mass market stuff seemed to attract very little attention at Frankfurt. VW’s new Polo sedan, all the way from Brazil, is a tidy looking new sedan derivative that may well appeal to current Bora buyers when the next one grows up to close to Passat size. Meanwhile, two petite Japanese models in blue kimonos twirled around and around the supposedly completely redesigned Subaru Legacy which looks just like its predecessor and was completely devoid of admirers most of the time. Did anyone notice it was new? Subaru also displayed a new Justy, built in Hungary, which is a re-badged version of the new Ignis which comes from the same Magyar Suzuki plant. Enough of the dross. Time to dream a little. Perhaps a €350,000 Mercedes-Benz SLR McLaren, with which M-B, again winning j-a’s award for best show display (the usual little three-storey hall), gained even more attention by firing up the 5.5-litre V8 right there on the stand. Hacks held mobile phones to the huge side-mounted exhaust pipes to transmit the gorgeous ga-bubba-ga-bubba-ga-bubba sound back to jealous colleagues at base. Or maybe Cadillac’s two-seat XLR, the first American product since a 1950s Ford to get a folding metal roof – and a cabin that can hold its head high in such esteemed European company? Maybe Aston Martin’s DB9? Nope. In the unlikely event of six little balls coming up with the right numbers one Saturday night in the near future, a new Maserati Quattroporte could be heading Graeme Roberts’ way. |
