To save $2 billion in some distant year—at least that’s the official story—GM bought 7% of French automaker PSA Peugeot Citroën. Perhaps it hoped that the alliance would bail out its bleeding subsidiary Opel. But what GM bought into was one of the most uncompetitive automakers in one of the toughest auto markets in the world. And there is no happy end in sight.
Sales in the 27-country European Union have been on a relentless downward slope that is in its fifth year and shows no signs of abating. So far, the largest market, Germany, which accounts for over 23% of new vehicle sales in the EU, has held up, but if it rolls over too, the math will get really ugly.
The first quarter of 2012 was particularly tough … for certain automakers, but excellent for others. After dropping sharply in January and February, sales in March remained on the same trajectory, the 6th month in a row of year-over-year declines, and the worst March in ten years. But not all countries in the EU suffered the same fate, according to the registration numbers that the European Automobile Manufacturers’ Association (ACEA) reported today.
In Italy, sales plunged 26.7% and France 23.2%. In Spain, which had a tough March last year, sales were down 4.5%. Sales fell off a cliff in Portugal (-49.2%), Greece (-42.6%), and Cyprus (-35%). Tragic numbers.
For the upside, head north. In Germany, sales perked up by 3.4%, in the UK by 1.8%. And in Finland, sales jumped by an astounding 82.2%. But overall in the 27-country EU, sales declined by 7% to 1.45 million units. For the quarter, they were down 7.7%.
A similar picture is emerging among automakers: some were growing and gaining market share; others were spiraling deeper into their hole. Sales at Fiat, which ironically owns 58.5% of Chrysler and might be counting on a bailout from that direction, was the hardest-hit among European brands, with sales plunging 26.1% in March. Market share eroded from 6.9% last year to 5.5% this year. Renault sales dropped 20.6%, chopping its market share from 8.9% to 7.6%. Sales at PSA, GM’s precious investment, dove 19.4%. Its market share fell from 12.9% to 11.1%—still in second place behind VW’s 23.4%. And sales of GM’s Opel dropped 11.5%, whittling its market share down from 7.9% to 7.5%.
Among Asian brands, it was a picture of disparity: Mitsubishi -30.8%, Honda -23.7%, Toyota -2.9%, but Nissan gained 4.3%, Hyundai 13.3%, and Kia 18%. And the German automakers eked out sales gains: VW +1.3%, BMW +3.1%, and Daimler +4.3%.
After four years of sales declines, “overcapacity” is what CEOs of uncompetitive brands toss around every chance they get. The latest was Opel Chairman Karl-Friedrich Stracke in a letter to his employees. In discussing the sagging sales, he wrote, “The main reason is the enormous price pressure triggered by overcapacity in the entire auto industry and by declining markets in Europe.” A prelude to closing plants and laying off workers.
Alas, PSA had already made several runs at it. In November, when CEO Philippe Varin played with the idea of layoffs, he was summoned by President Nicolas Sarkozy. Last June, internal documents surfaced that discussed closing the plant in Aulnay-sous-Bois near Paris, which employs directly and indirectly 9,000 people. On Thursday, Sarkozy met with union representatives. On Friday, he said on i-Télé that he’d do “everything to save the factory.” On Saturday, he once again summoned Varin to the Élysée to discuss the fate of the plant. A week before the election, he needed to make a populist statement. But after their meeting, not a single statement emerged from either one.
GM has also hit a wall of resistance in its cost cutting efforts at Opel. Representatives for its 40,000 workers at 12 plants in eight countries have united to oppose any concessions. And GM is stuck with a contract dating from the financial crisis when it tried to get out from under Opel by shutting it down. To protect factories in Germany, Chancellor Angela Merkel brokered the sale of Opel. While the deal collapsed, the restructuring agreement survived, preventing GM from closing any plants in Germany through 2014.
Like PSA, Opel is getting hit by a double whammy: a declining market and a declining share of that declining market. While the first is out of its control, the second is self-inflicted—a combination of price, product, marketing, and other factors. Closing plants and transferring production to cheaper countries won’t reverse market share erosion, though it might reduce losses. Market share erosion, if unchecked, may lead to the death of the brand—the likely destiny for one or more brands in Europe.