European carmakers fight back against premium and low-cost rivals

Anyone who saw the horsepower Ford brought to this month’s Geneva motor show must have thought the good times were back for the “blue oval” brand.

The Michigan-based carmaker, whose lossmaking European operations have for some time been a thorn in its side, showed off a flashy Ferrari-style GT supercar alongside sporty versions of its popular Focus and Fiesta hatchbacks.

But Jim Farley, who took over as head of Ford’s European arm at the start of the year, was in no mood for celebration. “The squeeze is getting worse and worse,” he said.

Mr Farley was referring to a trend that has been gradually eating into the volume carmakers in Europe since before the financial crisis.

Premium brands such as BMW, Audi and Daimler’s Mercedes-Benz have been poaching customers from the mid-market by producing more models outside their core territory of sports cars and executive saloons — including smaller vehicles and even family-friendly people carriers. And thanks to innovative financing packages and strong resale values, these vehicles have also become more competitively priced versus volume brand equivalents.

Meanwhile, Korean manufacturers Kia and Hyundai have been winning budget-conscious consumers, at first with their entry-level cars but increasingly with pricier sport utility vehicles. Renault’s Romanian Dacia brand — whose £6,000 Sandero hatchback is the UK’s cheapest new car — has also struck a chord.

Ford, like General Motors’ Opel brand in Europe, is neither cheap nor premium. Likewise European manufacturers such as PSA Peugeot Citroën, Renault and Fiat Chrysler Automobiles, have each felt the squeeze.

Between January 2006 and January this year, the five brands lost 10 percentage points of European market share, going from about half of unit sales to 40 per cent, according to data from the Acea manufacturers’ body analysed by Evercore ISI, a research firm. That equates to more than 1m of the 12.5m cars sold in Europe last year.

“That ground has been lost,” says Sergio Marchionne, chief executive of Fiat Chrysler Automobiles, who sees no future for Fiat as a volume proposition. “Fiat is no longer — and never intends to be — a full range of product of the calibre of the [other] mass brands.”

Mr Marchionne is focused on harnessing growth through other marques in his portfolio: the Maserati saloon brand and the Jeep SUV maker.

Other mid-market brands are less fortunate. With the EU car market back to volume growth mode in 2014 after six consecutive years of contraction, attention has turned to how these carmakers might capitalise on the European recovery.

Ford and Opel — respectively Europe’s fourth- and fifth-biggest carmakers by sales — inched up their market shares in 2014 but profitability remains elusive.

Ford reported a loss before tax of $1.1bn in Europe in 2014, paring back the group’s global pre-tax profit to $6.3bn. It expects to lose more than $250m this year.

Opel, meanwhile, recorded an adjusted operating loss of $1.4bn in 2014. Both carmakers, having closed several plants in Europe, aim to return to regional profitability in 2016.

“We cannot cost-reduce Opel into a break-even,” says Karl-Thomas Neumann, Opel chief executive. “It’s not possible. We need to sell more cars.”

The squeeze is getting tighter as each mid-market manufacturer jostles to find that hit product that will turn round their fortunes

To do that, Opel and Ford are attempting the biggest ever revamps to their European model ranges. The pair are launching more than 50 new or updated models by 2018 in an attempt to reinvigorate appetite for their brands.

Opel, which has eliminated the Chevrolet marque from Europe, is pitching itself as a fun, sporty, high-tech — but affordable — brand. It is introducing in Europe GM’s OnStar technology that connects the car to the internet. Like Ford, it also put an emphasis on performance in Geneva, unveiling the fastest Corsa ever.

“We are trying to answer this question where we are squeezed in the middle,” says Mr Neumann. “We still think there is a place, because not everything is cheap, and not everything is premium . . . There are brands in Europe, such as H&M [the Swedish clothing retailer], that play that. They are not the cheapest, but they are very affordable and they are very fashionable.”

Ford is meanwhile seeking to put an upmarket twist on its existing models, launching a premium consumer concept called Vignale — which offers upgraded exterior and interior detailing on the cars and special treatment for customers in the showrooms.

The other approach is to move into SUVs, a fast-growing bracket being entered by Renault with its new Kadjar model.

But analysts warn the result of all these new initiatives by mid-market carmakers in Europe could simply be a ratcheting up of competition in an already intense market.

“The squeeze is getting tighter as each mid-market manufacturer jostles to find that hit product that will turn round their fortunes,” says Justin Cox, head of European production at LMC Automotive, a consultancy.