Factors Affecting Sales of the Automotive Industry in Europe

Table of Contents

Abstract

Acknowledgements

Table of Contents

1 Introduction
1.1 Problem.
1.2 Aims and Objective

2 Literature Review/ Secondary Research/ Data Analysis
2.1 Introduction to the European Industry and Market including Sales
2.2 Sales figures in Western Europe of passenger cars
2.3 The three European Markets used as Case Studies
2.3.1 French Market including Sales Analysis
2.3.2 German Market including Sales Analysis
2.3.3 UK Market including Sales Analysis
2.4 The Major Players in the European Market including Sales
2.4.1 The American car producers
2.4.2 Ford Motor Company
2.4.3 The French car producers
2.4.4 The German car producers
2.4.5 The Italian car producer
2.4.6 The Japanese car producers
2.4.7 The Korean car producers
2.4.8 The car producer in the UK.
2.4.9 Summary of the Major Players in the European Market
2.5 Internal Factors affecting Sales (divided into 4 Ps)
2.5.1 Price
2.5.2 Product
2.5.3 Place
2.5.4 Promotion
2.5.5 Summary on Internal Factors
2.6 External Factors affecting Sales
2.6.1 Organisational issues in response to environmental change
2.6.2 Market effects
2.6.3 Political Issues
2.6.4 Development of Economy
2.6.5 Ecological and physical forces
2.6.6 Socio Cultural effects and Consumer behaviour
2.6.7 Summary of External Factors

3 Personal Findings/ Primary Research
3.1.1 Customer Questionnaires
3.1.2 Sales Agent Interviews
3.1.3 Producer Interviews
3.2 Data Analysis
3.3 Match and Compare Perspectives
3.4 Summary of Primary Research

4 Summary and Conclusion
4.1 Reasons for the declining Sales
4.2 Weight factors affecting Sales
4.3 Recommendations

5 References

6 Appendix

Abstract

Since the new millennium, the European automotive industry has experienced an enormous drop of sales and profitability.

This project deals with the factors that affect sales in the car mass market in Europe, in order to identify the reasons for the current recession. It uses the countries France Germany and the UK as case studies.

The project defines the current situation of the industry and provides sales figures of the overall European market, as well as of the markets in the individual countries. It identifies the major players in the industry and states their performance showing sales figures for the individual brands.

Internal factors relating the marketing mix, and external factors of the environment that could have an influence on sales are described.

A study was conducted in the 3 countries used as case studies, identifying consumers’ preferences and the awareness of those by people in the industry such as employees of dealerships and manufacturers. The two perspectives are compared.

To conclude reasons for the drop of sales are given, the factors that influence sales are weighted and recommendations on how to improve sales and the performance of the industry are made.

Acknowledgements

Marie-Laure Gavard-Perret my tutor in Grenoble, Dr. James Tannock my tutor in Nottingham, Dr. Richard Cobb, Dr. Svetan Ratchev, Dr. Peter Standring, Dr. Norbert Schmitt, Jeanne Duvallet, Nadia, Maria from the International Office, Dr. Ron Sanderson, my parents, Monika Keitl, Simon Hopkins, Bernd Manhart and everybody who took part in my study. Special thanks to the employees of the companies BMW, MB, Audi and the dealerships Citroen/ Saab, VW, Ford/ Mazda, Fiat/ Alfa and Opel.

1 Introduction

On the 3rd of July 1886 the first motorcar was built in Mannheim by Carl Benz.^[1] From that point of time the mobility for human beings was about to change. Today motor vehicles are a part of the everyday life of most Europeans. They are also responsible for the income of many, as the invention about 120 years ago was the beginning of a mature, global and very competitive industry.

“The automotive industry is often described as “the engine of Europe” because of its economic and social importance and the historical role it has played in the development of our continent”(Mission Statement of the European Automobile Manufacturers Association).^[2]

The European car industry employs directly about 1.1 million people and supports another 11-12 million jobs.^[3] Further it provides activity for other industries such as components, electronics, informatics, telecom and logistics.^[4] The industry is regarded as a key player in the European Union of the 21st century and as an essential part of the economy.

1.1 Problem

Since the beginning of the new millennium the European car industry is facing the problem of leveling and decreasing sales. With the markets being very crowded and saturated, competition is great.^[5]

In general European manufacturers have to deal with a decrease in sales as Japanese and Korean manufacturers are gaining strength in the steady market.

Companies recognize large losses of profits and revenues for example the bestselling European cooperation Volkswagen Group has announced a 48% fall in its 2003 profits and also a decline in production.^[6]

Also the prestige Brand Mercedes could only generate € 20 million in the 4th Quarter of 2004 as compared to € 748 million in the 4th Quarter in 2003.^[7]

With loss of profits and demand, companies have to cut down excess capacity, in order to reduce production and relive the problem of too many cars chasing to few buyers. For example Skoda Auto redirected 4700 workers of the best selling Fabia plant for a two day break in order to act on the current sales slump.^[8] Labour reduction at Skoda of polish workers went from 4000 at the highest level to 200-300 today.

Another example for the significant of the problem is that last year only in Germany about 1200 industry related enterprises went bankrupt and about 7000 people lost their employment..^[9]

Basically many European manufacturers are facing a recession and have entered a period of profound restructuring, which has a major impact on the European economy.

1.2 Aims and Objective

In this project I aim to identify the factors that affect sales in the European automotive market and will try to rank them in their importance.

The three European markets France, Germany and the UK will be case studies as they are three of major markets in the European Union and match with the European internationality of this project.

By looking at Major players and their success in their markets I will spot market leaders and manufacturers that are doing well. I will try to identify the reasons for their success and compare it to others.

Also by examining past sales figures industry I will identify trends get a better idea how markets and producers are performing in order to support my arguments.

My aim is to name and define the major internal and external factors that could have an influence on the sales of vehicles.

Also with primary research using questionnaires and interviews gathering data and opinions of customers and people in the industry I will gain specific and up to date information. I will look at customer wants/needs and the producer’s side and see if the two perspectives match.

To conclude I hope to be able to give reasons for the currently bad situation of the European car industry, weight the factors that affect sales⁷ and give recommendations for improvement.

The project will be concentrated on the passenger car mass market.

2 Literature Review/ Secondary Research/ Data Analysis

A thematic review was used organising the found information out of books, journals, magazines, newspapers and Internet links around the topic.

2.1 Introduction to the European Industry and Market including Sales

Western Europe is besides the US the strongest automobile manufacturing area. The 166 parts and assembly plants in the EU build about 16 million automobiles each year which is about 30% of the world car production (Appendix1). With 14 to 15 million sales in Western Europe per year most vehicles that are produced are also consumed on the continent. Main producers are Germany(22%), GB(15%), France (15%), Italy(16%) and Spain(10%) (Appendix 2).^[10]

The European car market consists of 40 marques offering about 250 different models.^[11] Since mergers and takeovers defined the industry in the 80s and 90s a couple large corporations now own several brands, sharing technology, parts, R&D, costs and profits.

As sales in Western Europe had their peak in 1999 with 15’060’847 units^[12] and were not able to reach this mark ever since, economists say that the European car markets are slowly reaching saturation what is known to the US markets since the mid 70s.^[13]

2.2 Sales figures in Western Europe of passenger cars

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A detailed diagram with sales in each country in Western Europe can be found in Appendix3.^[14]

Problem of the data, the Total sales figure is not as accurate as the on above, because countries like Finland, Monaco or Lichtenstein are not included.

Sales figures in Western Europe of passenger cars

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Looking at the passenger cars sales in Western Europe over the past ten years the start of recession can be noticed around 2000.

With a max of 15.060.847 cars in 1999 are the current sales of 14.516.521 not very satisfying.

Also from 1995 until 1999 there was an average growth of sales of 5,77% and a total growth of 25,14% whereas the sales from 2000 onwards decreased. This may support the argument that the European car industry is reaching saturation.

2.3 The three European Markets used as Case Studies

The German, French and the British markets can be regarded as the most important markets in Europe with total sales of about 7.85 million in 2004, which accounts for half of the European sales. Also these three markets are home for the 6 major European car organisations (BMW AG, Daimler-Chrysler, MG Rover, PSA, Renault and Volkswagen Group).

Italy accommodating Fiat S. p. A. and having a yearly demand of about 2.3 million vehicles and Spain where Seat is produced with sales of 1,5 million cars, are the only major European markets that will not be covered in detail (Appendix 2).

Total Sales of passenger cars for the three markets France, Germany, GB ^[15]

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Looking at the sales of passenger cars in the three counties used as case studies, a similar picture to total sales in Western Europe can be identified.

Also with the greatest sales in 1999 of 8.148.214 vehicles and current sales of 7.847.803 cars a drop in sales had to be realised.

There was 13,33% increase in sales between 1995-1999 and a 3,83% decrease since then.

This also shows the slump the industry is it in since the new millennium.

Sales of passenger cars in France, Germany and the UK over the past 10 years^[16]

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Comments on the Sales data will be made in more detail when describing the individual markets.

2.3.1 French Market including Sales Analysis

The French market is currently the 4th largest market in Western Europe for passenger cars with sales round about 2 million. With their own car industry supplying their own market, the French tend to buy vehicles that are produced in France. The Market leaders are Renault, Citroen and Peugeot. Looking at the top 25 selling cars in France the top 6 are French marques. Also the total percentage of sold French cars out of this first 25 bestsellers is 76,05% (Appendix5). Therefore one can see the strong loyalty French consumers have to their brands, which might be supported by great price advantages to importers such as German cars.

The French sales figures seem pretty stable. They show some variation and cyclical fluctuation but overall demand has not changed much compared to 10 years ago. This might be an indicator that the French market has reached its saturation already some time ago and demand will remain constant at about 2 million sales a year.

With a growth of sales of about 4,7% in January compared to the year before, especially French producers can hope for larger revenues of a promising French market this year (Appendix6).

2.3.2 German Market including Sales Analysis

The German car market is the largest in Europe. With Sales over 3 million new passenger cars a year it is regarded as one of the most important but also one of the most difficult markets in the world, especially for importers. The marques VW, Audi, BMW and Mercedes are regarded superior and are well liked by German customers. A reason for that according to Franz-Josef Paefgen (Bentley Boss) is that “German customers have a strong affinity to German car marques”.^[17] This can be supported by statistics showing that about 1,8 million cars that are sold in are originally German marques, which is more than half of the total market (Appendix4). Another way of looking at it is that about 2 million cars that are sold in Germany are also produced there which gives buyers a relation to the marques.

Looking at the German sales statistic of the past ten years one can see that producers are having great difficulties in the German market as sales decreased. As well as the European sales the Germans had their peak in demand for passenger cars in 1999 with 3,8 million vehicles sold. The current sales figures of 2004 at 3,25 million lie even below the sales ten years ago.

In the German market, there is definitely a negative trend which does not seem to change, as sales in January 2005 fell by another 3% compared to the year before (Appendix6).

A reason for that might be that might be the recession of the economy in Germany.

2.3.3 UK Market including Sales Analysis

The UK market has grown to the second largest market in Europe overtaking Italy in 2001, having a yearly demand of about 2,5 million passenger cars. Other than the French and the Germans the British do not have a preference when it comes to the origin of their vehicles. They buy in first place American vehicles with about 1 million and French, German and Japanese vehicles with all about half a million sales.

A reason for this is that GB has hardly a own car industry left, apart from foreign producers manufacturing in the country for example, Nissan and Vauxhall. The original prestige brands like Land Rover, Jaguar, Bentley and Rolls Royce still have a great attraction on the island but do now belong to American and German Car Groups. MG Rover and some smaller sports car producers is what is left in British ownership.

Looking at the sales figures the British market is one of the only markets that show a positive trend although the general trend on the continent is reversing. Over the past 10 years demand in the UK has risen by about half a million cars which is about 32%. This shows that there is no sign of saturation on the island although the infrastructure is about to hit its limit.

This is a very positive development, which might be related to the good economic performance of Britain over the last years. It can definitely be regarded as a leader and good example in the depressing industry at the moment.

2.4 The Major Players in the European Market including Sales

Producers from all over the world define the European Car market. With the cooperation and integration of manufacturers, several very powerful car groups developed which now own and control a wide variety of brands. The most important car organizations are from America, France, Germany, Italy, Japan, Korea and the UK.

An introduction to the major players in the European mass market of passenger cars will be made by country of origin, group and managed brands.

2.4.1 The American car producers

With the production of about 15 million cars the American car manufacturers are the second largest production area in the world, being responsible for about 25% of the world car production.^[18] The traditional Big Three: Ford, GM and Daimler-Chrysler are the dominating producers in the US.

The company Ford played an important role in the development of the industry by designing the first production line and using exchangeable parts since 1913.^[19] This enabled to produce quicker, cheaper and with better quality.

Today American cars are still an exception in Europe because of their high fuel consumption and the European petrol prices. Therefore the American car Groups took over recognised European brands and design cars especially for Europe to be competitive in the market.

2.4.2 Ford Motor Company

As described above the Ford Motor is a company with great tradition with its headquarters in Detroit, Michigan.

The company consists of the American brands Ford, Lincoln and Mercury the Swedish brand Volvo Cars and the British Brands Land Rover, Jaguar and Aston Martin.

Although Ford had the world’s best selling and Europe’s second best selling vehicle, the Ford Focus in their portfolio, its success especially in the European market is only average (Appendix10).^[20]

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The Ford Sales figures are pretty constant although there has been a slight decrease in Western Europe since 1999. The figures show a similar trend as the overall European Sales figures. This could mean that Ford is actually competing well in the European Market but has to deal with an overall recession. The figures support the argument of the market reaching saturation.

2.4.2.1 General Motors Corp.

GM Corp. is the world’s largest automotive manufacturer leading the world’s sales since 1931. The corporation employs about 360.000 people globally and for example in 2001 it was responsible for 15% of the world’s sales. The Company consists of the American brands Chevrolet, Pontiac, Buick, Oldsmobile, Cadillac, GMC, Saturn, Hummer and the European marques Saab, Opel, Vauxhall and Holden.^[21]

As already said above American vehicles do not find great demand on the European continent, therefore Opel/Vauxhall and Saab are the two largest representatives of the GM group over here.

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The Sales of the GM Corp. show a negative trend since 1999. The problem child Opel/Vauxhall is mostly responsible for that trend. A bad image because of quality issues and a “boring” design left the brand unattractive. GM has already made reconstructing changes in production and management and is now trying with a test car action to rebuild Opel’s image and regain customers.

Overall can be said that the corporation is strongly affected by the recession of the European car industry and that image plays an important role when it comes to sales. GM can be regarded as one of the losers in this European market.

2.4.2.2 Daimler-Chrysler

Daimler-Chrysler is a merger between the American and German firms Chrysler and Mercedes. The group will be covered in more detail under German producers as the headquarters are in Germany.

2.4.3 The French car producers

The French car producers supply about 25% of the European market and are therefore the second strongest force in the Europe (Appendix9).

Having dealt with image damaging quality issues from years ago the French car producers “are now taking a recognisable position” (Franz-Josef Paefgen/ Bentley Boss).^[22] Today the French can impress with extraordinary designs, good technology and a very competitive pricing policy.

The main producers in France are PSA Peugeot/ Citroen and Renault.

2.4.3.1 PSA Peugeot/ Citroën

In 1976 the PSA group was found, which is a merger of the two French car marques Peugeot and Citroen, which was based on the ownership of Citroen by Peugeot being the largest share owner.^[23]

Serving about 14,5% of the Western European passenger market, the Group is the second strongest in Europe (Apendix9).

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The total and the individual sales figures show a positive trend with a slight dip in 2002. This drop in sales is probably related to the overall recession of the industry. As market share seams to maintain pretty stable the group remains competitive in the market.

Overall can be said that the group has been successful establishing a strong second position in the market and is not as affected as other producers by the current slump. On the other hand the figures show some sort of saturation of the industry.

2.4.3.2 Renault

Renault is the most successful car brand in Europe having about 10,2% of the Western European Market in 2004 (Appendix9). Further the Renault Megane was the bestselling vehicle in Western Europe in 2004, being purchased 714604 times (Appendix10).

This is an indicator of the current success of French vehicle producers and their current business strategy. Well designed, cars with good quality to relatively low prices.

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Looking at Renaults Sales there has been an enormous boom before 2000 but after the sales start to show a negative trend. This seems also be related to the bad performance of the industry. As well a PSA market share remains stable, which shows the French competitiveness. Further having build Europe’s most selling car and most selling brand, Renault shows a strong business sense. The company is well managed but also is affected by the drop of overall demand. The argument of saturation is as well supported by the figures.

2.4.4 The German car producers

Germany is well known for its tradition of producing automobiles. With Carl Benz building the first car in 1885 and Rudolf Diesel inventing the diesel engine in 1897, German engineers played an important role in the development of the automobile and the industry.^[24] According to Ralf Paefgen are “the Germans still regarded as top of the league when it comes to vehicles”.^[25] In general the cars are regarded as straight forward designed, of good quality and relatively expensive especially outside Germany. The three most important German producers are BMW, Daimler-Chrysler and Volkswagen but not all have been able to continue their previous success.

2.4.4.1 BMW AG

BMW is a traditional Bavarian Producer, owning the brands BMW, Mini and Rolls Royce.

In 1994 BMW bought the British car manufacturer Rover including Mini and 4 years later the branding rights of Rolls Royce.^[26] In 2000 BMW sold Rover and had to deal with accusation having exploited the brand, as BMW had access to the knowledge of Land Rover and releases a 4x4 wheel car, which was based on it shortly after.

Having kept the segments Mini and Rolls Royce, BMW refurbished the little dusty British brands and helped with new technology and design to relive the cult of the two originals and enlarge their product portfolio.

Today BMW can impress with exclusive designs, top quality and dynamic driving with high performance engines, which should be a reason for their current success.

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Looking at the BMW Sales one can see an enormous drop in total sales of about 350.000 cars in 1999, which is related to the sale of the Rover section. Other than that, all market segments show a positive trend in sales and the firm is gaining market share since 1999 (Appendix8/9). The group is even gaining strength in the shrinking German market, which underlines the great performance at the moment (Appendix4). BMW can definitely be regarded as a well-organised and winning organisation at the moment.

2.4.4.2 Daimler-Chrysler

Since 1998, Daimler-Chrysler is a Merger of equals between a German and an American car firm, having its headquarters in Stuttgart, Germany.^[27]

The car group is divided in 2 parts, the Mercedes Group and the Chrysler Group generating and justifying individual profits.

The Mercedes Group consists of the upper class brand Mercedes, the luxury brand Maybach and the fun car segment Smart.

The Chrysler Group includes the brands Chrysler, Dodge and Jeep.

In this project the Mercedes Group plays a more important role, as it is more present in the Western European market.

The Mercedes Group and especially the brand Mercedes is well-established and accepted vehicle producer, which puts great emphasis on safety, innovation and quality. Unfortunately the brand had to deal with image damaging quality issues and corruption accusations lately, which let for example to great losses of about 10% on the stock exchange market over the past 5 years.^[28]

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Since 2002 the Mercedes, Chrysler and Jeep sales in Western Europe are falling. Especially in 2005 the brand Mercedes has to deal with an enormous drop of sales for example the E-Class lost about 50% in February 2005 compared to February 2004 and the C-Class 22%. Mercedes can be regarded as a German producer in trouble and loosing competitiveness, which shows that image plays an important role when it comes to sales.

The VW Group is the bestselling corporation in Western Europe, having a market share of 17.7 % and the second largest passenger producer world wide (Appendix9).^[29] The Group compromises the upper class brand Audi, the luxury trade name Bentley, the middle class marques Seat and Skoda and the original founder trademark VW which is aimed at the upper middle class.

2.4.4.3 Volkswagen Group

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The total sales of VW have decreased since1999 and market share dropped by about 1%. A reason for that could be the declining German market in which the VW Group and especially the best selling brand VW play a very important role selling about 1 million vehicles and having a market share of about 30%.

The brand Seat also is having some sales related difficulties since 2000.

Other than that Audi and Skoda are showing a positive trend and are gaining market share in Western Europe.

Even the brand Bentley is doing well and is hoping to sell about 10000 vehicles by 2006.^[30]

Overall the corporation seems pretty successful with what it is doing otherwise it would not have reached that status. It just has to deal and is affected by the current negative development of the overall industry.

The figures support the statement that there is some sort of saturation in the Western European Market

2.4.5 The Italian car producer

Italians are known to be very fashionable in a classical way having great designers like Versace, Armani and Gucci. Also their vehicles can impress with very aesthetic designs and a beautiful appearance.

Until the 1970s, Italian producers were a driving force in the European market, competing with the Germans. Although of quality problems sales were high and so was market share.

Currently the Italians are still the fourth largest producers in Italy but market share is shrinking. Quality issues, image problems and a bad product policy are one of the largest problems. The only asset they got left is that their cars look good.

The major producer in Italy is Fiat comprising most of the Italian brands that are left.

[...]

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^[1] http://de.wikipedia.org/wiki/Auto#Wirtschaft

^[2] http://www.acea.be/ASB/ASBv1_1_new.ns

^[3] http://www.acea.be/ASB/ASBv1_1_new.ns

^[4] http://www.acea.be/ASB/ASBv1_1_new.ns

^[5] European political Issues/The changing culture of the European Car Industry (Phil Evans)

^[6] Brand Mot (Brand Strategy April 2004)

^[7] “Schrempp stellt Anleger auf hartes Jahr ein” (Financial Times Germany 11/02/2005)

^[8] Skoda Auto shifts employees away from production to counter sales slump (PBJ.cz 13.05.2002/ Page 3)

^[9] Auto Bild (18/03/05) German Car Magazine

^[10] http://www.autointell-news.com/european_companies/western1.htm

^[11] European political Issues/The changing culture of the European Car Industry (Phil Evans)

^[12] http://www.acea.be

^[13] Industrial Restructuring and Industrial Relations in the European Car Industry (Bob Hanké/ 1998)

^[14] http://www.acea.be

^[15] http://www.acea.be

^[16] http://www.acea.be

^[17] „Marken sind stärker als Länder“ (Welt am Sonntag 27/03/2005)

^[18] http://www.autointell-news.com/european_companies/western.htm

^[19] http://de.wikipedia.org/wiki/Henry_Ford

^[20] http://www.autointell.net/nao_companies/ford/ford-motor-company/ford.htm

^[21] http://www.autointell.net/nao_companies/general_motors/general.htm

^[22] „Marken sind stärker als Länder“ (Welt am Sonntag 27/03/2005)

^[23] http://de.wikipedia.org/wiki/Peugeot

^[24] http://de.wikipedia.org/wiki/

^[25] „Marken sind stärker als Länder“ (Welt am Sonntag 27/03/2005)

^[26] http://de.wikipedia.org/wiki/BMW#Geschichte

^[27] http://de.wikipedia.org/wiki/Daimler_Chrysler

^[28] Bittere Erfahrung (Die Welt 02/04/05)

^[29] World motor vehicle production by manufacturer 2003 (OCIA Statistics Committee)

^[30] Nobel Tochter Übertrifft Prognosen Auto Bild (18/03/05) German Car Magazine