Big 1st-Q losses push European carmakers to resolve market problems

Article by Christian A., on May 14, 2012

Huge financial losses for the first quarter have sped up the need for the vehicle manufactures based in the European region to fix critical problems in their base market. In detail, the automakers in the continent are manufacturing too many vehicles in a market where the spending power of customers is adversely affected by government debt-crisis severity measures.

To avoid bloated inventories, many car manufacturers have been forced to engage in a profit-sacrificing price war. Automotive analyst Max Warburton at London-based Bernstein Research commented that the profitability on producing vehicles has "gone from poor to utterly dismal, with vicious pricing."

Earlier this month, Ford Germany chief Bernhard Mattes informed the Financial Time Deutschland that the price war is serious and is worsening. Analysts forecasted that net pricing -- the automobile transaction price after deducting incentives -- dropped 1% in 2011 and could further decline this year. Due to these factors, Ford, General Motors and Fiat lost millions of euros for the first three months.

Although not reporting quarterly financials, Citroen, Renault and PSA/Peugeot experienced sharp decrease in revenues in the first quarter. This scenario will adversely affect their profitability once they report their results for the first half of the year.

CEO Martin Winterkorn at Volkswagen Group summed up the feeling of many top automaker executives when he shared in April that his company was preparing for a "very demanding year" due to the pressure placed against the vehicle markets by the debt crisis in Europe.

Topics: europe

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