Global Economics

Europe's Car Market: The '06 Report Card


Fiat's U-turn may have been the most dramatic story of the year, but Lexus and VW saw rising sales, while Renault and Jaguar had a rough ride

The big winners of the European car market in 2006 were Fiat, Lexus, and Volkswagen. The losers were Renault, Jaguar, Mercedes' Smart brand, and Nissan, according to the provisional full-year sales figures published by the European Auto Manufacturers Assn.

Fiat's dramatic rebound was the biggest story of the year, giving serious momentum to the turnaround drive of Chief Executive Sergio Marchionne. Sales of Fiat (FIA) brand cars soared 22.1% to 852,000 cars while Fiat's European market share jumped to 7.6%, up from 6.5% a year ago. Just two years ago, Fiat's sales were in freefall and losses over five years had hit $14 billion, prompting many experts to write off the Italian giant as bankrupt.

Even Fiat's struggling sister brands are starting to recover. Fiat Group sales, which include the Alfa Romeo and Lancia brands, rose 17.6% last year to 1.1 million cars. Alfa's sales jumped 12.2% to 143,307. Fiat Auto's recovery is a bitter pill for General Motors (GM) CEO Richard Wagoner, who paid Marchionne $2 billion in 2005 to cancel a put option that would have allowed Marchionne to sell Fiat to GM at a fair market price.

Marchionne's next big test is the launch later this month of the new Fiat Bravo compact, successor to the failed Stilo (see BusinessWeek.com, 7/25/06, "Fiat's Comeback—Is It for Real?").

Reversing a Slide

In the premium market, the spotlight was on Toyota's upmarket brand Lexus. In the 15 European Union countries, Lexus sales rose 72% in 2006 to 36,662 cars, and across the continent sales were up to 50,570. Lexus' market share in Western Europe hit 0.3%, up from 0.1% in 2005. That's still far behind BMW's 5.4%, Mercedes' 4.9%, and Audi's 4.3%, but Toyota (TM) is gaining ground fast, adding a flush of new models, and winning converts by offering top-flight service (see BusinessWeek.com, 6/2/06, "Toyota Pulls Rank in Britain").

New models such as the Passat and higher-performance variants of the Golf compact helped Volkswagen reverse last year's slide in Europe, boosting VW brand car sales 7.6% and total group sales by 6.2% to 2.9 million cars. The Golf ranked as Europe's fourth most popular car last year, with sales of 391,273, according to a preliminary forecast by market researcher Global Insight.

VW's premium unit Audi saw sales edge up 2.9% and VW's Czech-built Skoda brand gained 9.7%. All in all, VW was able to boost its market share in Western Europe to 19.9%, securing its long-running lead as Europe's largest auto group (see BusinessWeek.com, 11/22/06, "Power Play at VW").

What a Disappointment

Renault's Clio subcompact was the single most popular car in Europe last year according to the Global Insight forecast, selling an estimated 425,190 vehicles. But the Clio's surge was not enough to counterbalance falling sales of Renault's main model family, the Megane. Zapped by its aging Megane, Renault's sales declined 12.6% in 2006, and its market share fell to 8.4%.

Nissan's European fortunes were equally dismal, with sales down 13% to 297,000. That's a headache for Carlos Ghosn, CEO of Renault and Nissan, who has set ambitious growth goals for both automakers.

At Mercedes's Smart car division, sales plunged 22% as DaimlerChrysler (DCX) restructured the money-losing unit and eliminated the four-seater model, known as the Forfour. The two-seater Smart mini is expected to finally go on sale in the U.S. in 2008, where it will be the smallest car on the market. Whether gas prices are high or low at the time could dictate Smart's fate.

Times also were tough at Ford's (F) Jaguar unit. With questions circulating whether troubled Ford would sell the storied British sportscar-maker, European sales fell 11.2% in 2006 to 40,800 units. Sometimes having a great brand name isn't enough.

Click here for a look at some of Europe's most popular—and most disappointing—car models.

Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau .

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