March 6, 2012 / 11:34 AM / 5 years ago

Car makers battle to escape Europe's slow lane

Reporters are seen next to new SL model cars displayed on the Mercedes booth during the first media day of the Geneva Auto Show at the Palexpo in Geneva, March 6, 2012.Denis Balibouse

GENEVA/LONDON (Reuters) - The differing fortunes of carmakers in Europe were on display at the Geneva Auto Show, with investment by Nissan and upbeat forecasts from BMW and Volkswagen, while Peugeot is selling its shares on the cheap to fund a tie-up with General Motors.

The European car industry seems to be reaching a tipping point, with a grinding price war underway in a withering market, combined with high overheads from excess manufacturing capacity.

But the pain is not being shared out equally. Demand for luxury cars is holding up better than the mass market and some automakers are proving more successful than others in tapping stronger demand from north America and emerging markets.

Japanese car maker Nissan Motor Co underscored its confidence on the first media day of the show on Tuesday, saying it would invest $200 million to build its new Invitation compact car from mid-2013 in Sunderland, northeast England, where its workforce will rise by 600 to 6,000.

Japan's No.2 automaker said the move, which will be supported by a $15 million loan from Britain, would create a total of 2,000 jobs at Nissan and its suppliers.

Meanwhile, Volkswagen AG threw out a challenge to the world's largest car makers by volume, General Motors and Toyota Motor Corp, as Chief Executive Martin Winterkorn said the German company was confident of achieving its long-term target of stealing the top spot after strong car deliveries at the start of the year.

And BMW said it expected group sales to grow this year, after a 14 percent year-on-year increase in February, with a young model range and growth in China and India offsetting a sluggish Europe.

PSA Peugeot Citroen, in contrast, highlighted the difficulties facing European-focused mass market automakers, as it unveiled a cut-price rights issue to fund the alliance with General Motors Co it needs to help it accelerate growth in new markets and cut costs on developing new models.

And French carmaker Renault, Nissan's alliance partner, highlighted the challenge European automakers face to tap more lucrative markets further afield.

The carmaker said it expected about half of its sales to come from outside Europe in 2014, compared with more than 47 percent this year.

Ten years ago only 17 percent of its sales came from outside the region, but it has been stepping up overseas efforts in recent years.

Fiat SpA Chief Executive Sergio Marchionne said the alliance between Peugeot and GM created complications for players like Fiat, but added he was open to all potential partnerships, even that newly formed tie-up.

MANUFACTURING COMMITMENT

Nissan, which expects initially to produce about 100,000 a year of the new Invitation model, already makes its Qashqai and Juke models in Sunderland, the largest car factory in Britain, where it produces around 500,000 vehicles annually.

The British government has been seeking to save automotive jobs as the European sector braces for capacity cuts. The small car segment in Europe, where competition is fierce and capacity bloated, is seen as the prime target for cuts.

Volkswagen's upmarket Audi business, meanwhile, expects to grow faster than the 4 percent figure predicted for the global market, according to sales chief Peter Schwarzenbauer.

"We believe we can do better than that," Schwarzenbauer said. "Effects from weakening markets in southern Europe should be well compensated for."

Audi believes demand for luxury vehicles in China, where it is market leader, will continue to expand in coming years. The Chinese luxury market could more than double to 2.3 million cars by 2020 from 945,000 last year, Schwarzenbauer said.

Audi sold more than 200,000 vehicles in the first two months of the year, a record for the company.

The Volkswagen group's namesake VW brand saw record sales in the first two months of the year, up 8 percent.

GM's Chevrolet Volt plug-in hybrid was named European Car of the Year in Geneva, showing low-emission technology had won over the experts.

However, consumer approval is proving more elusive: earlier this month the carmaker said it was halting production of the plug-in hybrid and laying off 1,300 workers for five weeks this spring, to control stocks of the vehicle in the face of disappointing demand.

Additional reporting by Laurence Frost, Christiaan Hetzner, Jennifer Clark and Bernie Woodall; Writing by Helen Massy-Beresford; Editing by Chris Wickham and Mark Potter

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