Tag Archives: restructuring

Sales not the key to European recovery

eu-flag1When European car sales figures for the first half the year were released recently they were met with positive noises that after a massive slide the market had bottomed out. The Eurozone crisis has gone quiet, stability beckons and next year will see the recovery start, so the story goes.  Now there’s the news that the Eurozone’s economy moved out of recession in the second quarter, and year-on-year Western Europe car sales were up in July, with signs of life in France and Spain. Meanwhile UK sales have actually grown by over 10% this year, with private purchases up by over 16%. Good news all round then.

But look more closely, and one of the key things analysts have attributed the UK success to in 2013 has been PPI windfalls. You know you’re not necessarily looking at a sustainable economic trend when that’s cited as a major factor.

And in Europe even Europe’s economic and automotive powerhouse, Germany, has been hit hard, down over 8% in the first half of the year. That’s more than the 6.6% for the EU as a whole and sends out a tough message to everyone including the UK. The fall European sales since 2007 has been catastrophic – three million units a year have been wiped from the spreadsheets. That’s over 20% of the market.  The Club Med basket cases like Greece and Portugal are minor car markets but three of the big five markets in Europe – Italy, Spain and France – have nosedived during the downturn. No-one on the inside is really expecting Europe to bounce back properly for a long time, and despite the positive signs the forecasts are still for a contraction of over 3% for the year.

But the point is this. Things may be about to start improving, slowly. But the car industry should not be trying simply to recover on the basis of having hit the bottom. It has huge structural and cultural problems – massive overcapacity, market saturation, a squeezed mid-market, changing consumer dynamics, a reliance on an old fashioned retail model, and the dominance of China. Now is the time to change. To reduce capacity. To recognise when a brand is unviable. To drop models in declining market segments. To invest in outstanding new product people actually want. To focus on design. To develop distribution models which are right for different markets. To embrace digital retailing.

The car industry is brilliant at smoke-and-mirrors and at reinventing itself. If it concentrates on the latter over the next five years it may emerge from the downturn stronger and more fit-for-purpose.