Renault S.A., Fiat S.p.A. and PSA/Peugeot-Citroen S.A. are being forced by market leader Volkswagen AG into a price war that endangers their goals to increase profits. Introduced in November 2010, VW’s new Passat was priced EUR675 less than the previous version of the mid-sized car. Max Warburton, a London-based analyst at Sanford C. Bernstein said VW is “lowering prices from a position of strength.”
Renault has slashed the advertised U.K. price of a Clio model by 22 percent to GBP9,995 ($16,200), while Fiat is offering French customers EUR4,000 ($5,500) off the EUR17,000 price of a Sedici SUV.
Despite the tentative economic recovery, pricing took a hit in the recession and apparently got worse in the fourth quarter of 2010. For the fourth consecutive year in 2011, the European auto market is set to shrink, following the end of government incentives that increased sales during the recession.
Renault, in 2010, sold 63 percent of its cars in Europe, compared with Fiat’s 46 percent and PSA’s 61 percent. Of the 7.14 million vehicles Volkswagen sold in 2010, about 3.31 million, or 46 percent, were delivered in Europe.
VW recently reported 2010 net income of EUR6.84 billion - the highest in the auto industry. The European Automobile Manufacturers’ Association stated that the European car market contracted the last three years, dropping 14 percent to 13.8 million deliveries in 2010 from 16 million in 2007.
Renault made a prediction on Feb. 10, saying that the market may shrink as much as two percent in 2011. PSA CEO Philippe Varin said at the recent Geneva auto show that the French market may contract 8 percent. [via autonews - sub. required]