1999 Frankfurt Show: Final Word

September 20, 1999
With European sales running at record levels, Earl Hesterberg’s job should be easy. So why is he worried?

Hesterberg, sales chief for Ford Motor Co.’s European operations, surveyed the floor of the Frankfurt Motor Show, waiting for the rush of almost 1 million people who will flood the sprawling exposition complex before it wraps up on Sept. 26th. The event is Europe’s biggest car show, and this year, it will serve as the background for 51 global introductions, 50 percent more than two years ago, at the last show. Ford itself took over Halle 5, filling it with its wide array of brands and products, from the tiny TH!NK electric vehicle to luxurious Jaguar sedans.

As in any market, the Frankfurt show serves as a catalyst, helping motivate motorists to go back to their dealers and place orders. That could help keep the momentum going in a year that is already running at record levels. Through July, Western European sales were up 8%, to 8.11 million, reflecting a mix of economic growth, rising consumer confidence — and an increasing competitive auto industry.

"This is the toughest car market in the world," said Hesterberg, who has served several stints in both Europe and the United States. "You have a proliferation of product…even as prices across Europe are dropping. It puts tremendous pressure on profitability."

Falling prices

New car prices across the continent have fallen about 2.5 percent this year, estimates Greg Melich, an automotive analyst with the Morgan-Stanley UK Group. In Italy, the decline has been even higher, as much as 8 percent, he adds.

In Great Britain, where costs have fallen an average 4% this year, rumors began circulating several weeks ago that Ford would launch an across-the-board price cut this Fall. Wary consumers suddenly decided to wait, choking off what was traditionally the U.K. market’s biggest month. Ford was forced to rush out with ads declaring it had no plans to cut prices—but if it did, it promised to rebate the difference to those who’d already bought its products.

Even without a major price cut, Ford is struggling to reverse years of losses, and doesn’t expect to have its European operations back in the black for at least two more years, Hesterberg conceded. But the situation isn’t much better for the continent’s other major players.

"Of the top eight companies, only two managed to grow their margins during the first half," says analyst Melich. If anything, he adds, "there’s margin deterioration. I think we’re going to have continued strong demand, but I don’t think we can expect margins to pick up any time soon."

The happy side for consumers

For consumers, of course, the outlook is a lot brighter. Manufacturers are racing new product to market at a faster-than-ever pace. And the new models are far more lavishly equipped than ever before. In its bid to regain its long-held position as Europe’s leading automaker, General Motors’ Opel brand has begun loading its vehicle with standard features, like power windows and air conditioning, that previously were offered only as high-price options.

These trends echo "what has been going on in the U.S." says GM’s European chief, Michael Burns. So is the push to give buyers products that more closely reflect their lifestyles and needs.

In contrast to America, where the design mantra is "bigger is better," Europeans must cope with chronic highway congestion and fuel prices that can top $5 a gallon in some markets. Here, the watchwords are "smaller" and "more fuel efficient." With the recent introduction of its 3-liter Lupo, Volkswagen became the first carmaker to hit an industry-wide goal of delivering cars that get about 75 miles per gallon. VW showed off another so-called 3-liter car (because they use less than three liters of fuel per100 km) at Frankfurt, as did Opel.

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