A price war that has eroded profits in the United States is spilling over to Europe as carmakers try to spur demand with discounts and free extras such as air conditioning, executives at this week’s Geneva car show told the Reuters news agency, which noted that the trend bodes ill for operating margins at carmakers already confronting sluggish consumer demand.

Asked if he was afraid of a full-blown price war on his side of the Atlantic, PSA Peugeot Citroen chairman Jean-Martin Folz told the news agency: “I don’t fear it – we are already there.”

Reuters said European carmakers have not yet resorted to the zero-percent financing and rebates that US rivals endure, but cut-throat competition means dealers are increasingly able to demand discounts from carmakers to help move cars off showroom floors.

“In some markets we have seen some pretty heavy discounting,” Toyota executive vice president Akihiko Saito reportedly said this week, adding: “Some brands are doing it more than others. There is tremendous pressure on prices.”

Renault chairman Louis Schweitzer told Reuters he would not be dragged into a price brawl. “I don’t want to participate in a battle for registrations at any price,” he added, reiterating the company’s share of the western European car market would be flat or lower this year because it was refusing to sacrifice profits for sales.

The report said pressure on prices has been heaviest in Germany, where it has recently started to take on an American flavour with General Motors’ Opel offering incentives for the first time on a new vehicle even before its launch.

Buyers willing to put in pre-production orders for the Astra can get a €1,000 discount on selected equipment packages on top of the fact that the redesigned model is €480 cheaper than its predecessor and has more standard features, the news agency noted, adding that the aggressive pricing policy followed the disappointing roll out of Volkswagen‘s new Golf late 2003, sales of which have so far failed to live up to high expectations.

Opel reportedly says it is trying to avoid VW‘s mistake in pricing the Golf too high, and wants to capitalise on weak Golf sales.

“The German pricing (of the Golf) was far beyond any competitive pricing point,” Opel CEO Carl Peter Forster told journalists in Geneva on Tuesday, according to Reuters, while boasting that the Astra was a much greater step forward in design.

The news agency said Volkswagen has been forced to counter Opel’s aggressive pricing – in the guise of a 30 year anniversary of the launch of the first Golf, the carmaker is now offering air-conditioning for free, a move that sent shivers throughout the industry and stoked fears of a full-blown price war in Europe.

Dealers in Germany are said to already be selling Golfs below their list prices while pressuring VW to cut prices, according to Reuters.

“Europe is unbelievably competitive. New models are already coming onto the market with incentives – it’s crazy,” Mazda Europe head Dan Morris told the news agency.

VW chief executive Bernd Pischetsrieder, showing few signs of worry, insists the company won’t cut its prices. When asked whether continued subdued sales of the Golf could prompt the company to stuff the car with more incentives and options, Pischetsrieder reportedly said only: “The Golf will only be 30 once.”

Reuters said some executives played down talk that price pressure was intensifying, saying the market had been tough for some time and that VW’s incentives would not necessarily spell more gloom.

“There is extremely tough competition in Europe. A price war has been raging for about two years now,” Peugeot‘s Frederic Saint-Geours reportedly said.

Claude Satinet, the head of Peugeot’s sister brand Citroen, warned against concluding that carmakers’ active marketing efforts mean sticker prices will be marked down. “We seem to be seeing more promotions, but I think that is just because manufacturers are advertising them more heavily, not because there has been an accentuation,” he told the news agency, adding: “I haven’t seen prices fall.”