EU carmakers look to turn corner at Geneva show

Europe’s carmakers head to the Geneva Motor Show this week with sales rising for the first time in seven years. It might only be 2 per cent, but for a battered industry, it is better than nothing.

Sales in Europe fell in 2013 to a level not seen since 1995, as all major markets apart from the UK and Spain faltered.

However, last year ended with four months of growth, and 2014 began on a positive note.

The European car industry’s annual convention, which begins tomorrow, is considered to be a useful barometer of the health of the continent’s market.

"The recent registration data that we are seeing certainly gives an indication that the bottom has been reached," says Ian Fletcher of IHS Automotive, a consultancy, which expects EU car sales to grow 2.6 per cent this year.

“With fewer cars having being sold in the region during the past five years, there is a structural need for new vehicles being sold so that the oldest vehicles in the fleet can be replaced,” Mr Fletcher said.

While an anticipated 2 per cent rise in sales this year will leave demand far below pre-recession levels and do little to fix the excess production capacity on the continent, the knowledge that sales have stopped falling is crucial for carmakers to plan their model and production strategies for the years to come. "Given that the industry has been going backwards since 2008 . . . for the first time in a while we are going to Geneva with a market when people are saying, hey, this is looking a bit better," said Michael Cole, the chief executive of Kia Motors' European division.

“With a holistic, broader sense of the industry, it is going in to the show with a more positive mood driven . . . by a more cautiously optimistic view of the European economy in general,” Mr Cole added.

The fall in sales has disproportionally hurt mass-market carmakers such as Fiat, Peugeot and General Motors as average-income households have been forced to cut back.

That has played into the hands of more value- focused manufacturers such as Kia and its South Korean sister brand Hyundai, and Dacia, Renault's low-cost marque.

“[EUROPE] should start to recover . . . likely at a slow pace given the unemployment level.

"I expect a 1 to 2 per cent growth in 2014, with, as usual out of a downturn, a better performance of premium brands compared to volume brands," says Xavier Mosquet, partner at the Boston Consulting Group.

“Within volume brands, I also expect a continued growth of smaller vehicles and low-cost segments, at least for a couple of years,” he said.

At January's Detroit Motor Show - North America's equivalent to Geneva - a bouncing, bustling Sergio Marchionne, Fiat-Chrysler's chief executive, summed up the positivity around the US industry by describing the event as "a completely different world" from previous years.

He had described Detroit's 2008 show as having "a stench of death", as the industry haemorrhaged cash in the midst of the financial crisis that would ultimately lead to the bankruptcy of General Motors and Chrysler.

European carmakers have so far escaped similar fates during the downturn, but plunging sales have resulted in the closure of a handful of factories and forced PSA Peugeot Citroën, the continent’s second-largest carmaker by sales, to turn to the French and Chinese governments for a €3bn bailout.

Hyundai will take its first tentative steps into the European luxury market this year in an attempt to test the water for a “modern premium” product in the continent’s more positive-looking car market.

The carmaker, which has risen from South Korean national champion to the world’s fifth-largest car producer thanks to two decades of high-quality, low-cost compact cars, will release its first luxury sedan in Europe this year as part of a long-term plan to increase margins in Europe.

"This is about seeing what we can do," said Allan Rushforth, Hyundai's top executive in the region. "Hyundai has a place in a future modern premium car segment, and we want to have some learning in the business and see how that would work."

Hyundai already sells the luxury Genesis sedan in South Korea and the US, and the company sees a European rollout as an image boost that would help sales in those key markets.

Fellow Asian carmakers Toyota and Nissan have struggled for years trying to gain a solid foothold for their luxury brands Lexus and Infiniti in Europe's premium market, where margins are higher and growth larger than in the moribund mass-market segment.

But they have so far failed to make significant inroads against the German "big three" of Audi, BMW and Mercedes-Benz, which account for roughly four out of every five European luxury car sales.

“We are not trying to follow Lexus and Infiniti,” said Mr Rushforth. “We need to increase our margins here in Europe, and what we can learn from the Genesis here will help us in the future with possible new products.”

Mr Rushforth has targeted sales in 2014 of between 600 and 1,000 Genesis cars, which will be marketed online, sold through Hyundai showrooms and targeted at customer markets such as diplomats and business people.

(c) 2014 The Financial Times Limited