Bloomberg News

Fiat Chief Urges End to Until-We-Die European Austerity

March 06, 2013

Fiat CEO Sergio Marchionne

Sergio Marchionne, chief executive officer of Fiat SpA and Chrysler Group LLC. Photographer: Chris Ratcliffe/Bloomberg

Fiat SpA (F) Chief Executive Officer Sergio Marchionne spoke out against deeper budget cuts in Europe as Renault SA (RNO) CEO Carlos Ghosn urged government spending to revive the region’s anemic sales, which he forecast won’t recover for another three years.

“At this point, austerity doesn’t work, the impact on Italian consumers is catastrophic,” Marchionne said yesterday at the Geneva auto show. “I understand austerity, but we can lose weight until we die.”

Automakers, grappling with a sixth straight year of declining European deliveries, join growing opposition to the region’s austerity measures. European Union finance ministers indicated this week that they may allow looser budget policies following a deadlocked election in Italy, protests across southern Europe against welfare-state cutbacks and French government resistance to spending reductions.

The region’s car sales in January fell to the lowest for that month since records began in 1990, with Spain’s market, once the region’s fifth-biggest, now lagging behind Belgium, even though Spain has four times as many people. Europe’s sales declines will depend on how much state spending is cut, Ghosn told reporters in Geneva, adding that he supports government incentives on trade-ins of older cars to promote sales.

French Industry Minister Arnaud Montebourg said last weekend he favors car-scrapping incentives to revive the country’s auto market and push people to buy more fuel efficient models, as opposed to a proposal being discussed to raise the taxes on diesel fuel. The government isn’t likely to make any decision on the matter yet this year, he said yesterday.

Europe Recession

The economy of the 17 nations sharing the euro has been in a recession since the third quarter as governments in countries such as Italy and Greece battle a sovereign-debt crisis with spending reductions. The European auto market contracted 7.8 percent to a 17-year low in 2012.

“It’s about finding answers to the high youth unemployment in Europe and about a society that isn’t drifting apart, but is in balance,” Volkswagen AG (VOW) CEO Martin Winterkorn said in Geneva regarding the crisis gripping the region.

Daimler AG (DAI) CEO Dieter Zetsche told journalists at the show that the European market’s two-month performance was worse than expected. Registrations in February dropped more than 10 percent from a year earlier in France and Germany, according to car- industry figures from those countries.

“There is only the question: is it going to be bad or very bad?” Ghosn said of the region’s market.

Spain Incentives

Spain’s government is imposing its fifth package of austerity measures in a year, including a higher sales tax and cuts in unemployment benefits, public-sector jobs and wages. At the same time, the country has renewed an incentive program to lure consumers into trading in old cars. Annual auto sales in the country are now 33 percent of what they were at the 2007 peak, James Muir, who runs VW’s Seat brand, said.

“We understand why Spain is doing it right now. They have a very high level of unemployment,” Susan Docherty, head of Chevrolet Europe, told reporters. “In the case of Spain right now, it’s just getting people into the showroom.”

In Italy, the economy has contracted for six consecutive quarters through the three months ended Dec. 31 as tax increases and tighter bank credit curbed investment and took money out of the hands of consumers. Elections in the country last month ended with inconclusive results that may lead to another ballot amid a voter backlash.

Spending Cuts

“Austerity without growth means only unemployment, taxation, burdens for everybody, no hope,” Marco Tronchetti Provera, chairman of Italian tiremaker Pirelli & C. SpA (PC), said in an interview in Geneva. The country’s vote showed “we have to look also for growth, as unemployment is the real issue.”

Marchionne said he does not support government intervention to boost the region’s ailing auto market.

“I prefer not to have incentivized items, I like natural demand,” Marchionne, who is the current head of the region’s ACEA lobby group, told reporters in Geneva today after meeting top executives from the other automakers.

Car-industry executives at the Geneva show outlined efforts to counter the European sales decline with spending cuts. Car discounting, which in Germany in 2012 was at the steepest level in two years, will probably extend into 2013.

Cutting Costs

“We’re paying attention to everything when it comes to cost reduction,” Jerome Stoll, Renault’s sales chief, said in an interview. “I hope this price war ends soon, as it condemns the car industry. Those who are cheapest on the market will face bankruptcy.”

Carmakers’ incentives hurt earnings last year while failing to revive the market. Paris-based PSA Peugeot Citroen (UG), Europe’s second-biggest auto manufacturer, reported a 576 million-euro ($751 million) operating loss for 2012. Renault’s automotive division and the European operations of Fiat, General Motors Co. (GM:US) and Ford Motor Co. (F:US) were also unprofitable last year.

Peugeot CEO Philippe Varin, who said he only favors targeted government incentives to replace aging diesel models, said he’s scaling back research and development spending by 600 million euros this year as the market continues to drop.

“No one is immune to the competition levels out there,” said Stephen Odell, Ford’s Europe chief. “Last year, we made the conscious decision that our share would reduce from prior- year levels because we weren’t going to chase business that didn’t make sense.”

To contact the reporters on this story: Mathieu Rosemain in Geneva at mrosemain@bloomberg.net; Tommaso Ebhardt in Geneva at tebhardt@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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