Luxury car manufacturers are expected to be the main casualties of future CO2 legislation in Europe, according to a recent research note released by London-based Citigroup Global Markets.
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As legislation is introduced, large-engine vehicles will become increasingly expensive to own, and customers will switch to small vehicles. That impact will start to be felt from 2007, according to Citigroup.
The report contrasted with external forecast institutes, that tend to see rapid growth in the upscale segments of the market, including 4×4 and crossover cars. “This growth appears inconsistent with Europe’s greenhouse gas (GHG) commitments,” said the Citigroup report.
Three manufacturers, Fiat, PSA Peugeot Citroen and Renault, are considered fuel economy leaders. They currently have an average carbon emission level of 145gCO2/km, largely because their vehicle sales are geared towards small cars. On the other hand, BMW and DaimlerChrysler are the worst performers because of their reliance on large-engine cars.
The Citigroup study was backed up by a joint study by IEEP/TNOP/CAIR produced for the European Commission, which examined costs falling to manufacturers under a number of different scenarios of legislation to reduce GHG emissions. That study concluded that “the winners under all systems are companies whose ranges already have a large proportion of compliant cars”.
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By GlobalDataBMW is expected to be hardest hit. Citigroup described BMW as “a carbon outlyer” in Europe, and in the US and Japan. The equity analysts suggested that BMW would suffer 15% reduced profitability (three year horizon) as a result of customers choosing less polluting and less content-rich vehicles.
DaimlerChrysler was placed slightly better than BMW in Europe thanks to the renewal of the Smart brand and a high diesel content. Chrysler was the least fuel efficient of the US-based assemblers. While DaimlerChrysler profit was expected to be hit in the short-term, in the long-term Citigroup assessed that the introduction of hybrid drives would help it in the medium term.
Fiat was described as the current fuel economy champion. Citibank expects that Fiat’s future brand image will be tied up with its ‘light environmental footprint’.
PSA Peugeot Citroen is also expected to do well. As well as offering one of the widest ranges of small cars in Europe, it also has a strong technology position thanks to its development of stop-start and diesel hybrid solutions.
Citigroup is concerned that while Renault-Nissan has a favourable CO2 position today, future product plans call for a move upscale. Nevertheless, Renault-Nissan should be able to absorb this across the corporate average and increase profitability slightly as a result. The report noted that Nissan has one of the least fuel-efficient lineups among European and US vehicle manufacturers.
Volkswagen is the only company with a neutral outlook as a result of changes in its model mix due to CO2 legislation, though Audi would lose out at the brand level.
Susan Brown
