VW threatens to quit ACEA over spat with Marchionne
Automaker wants Fiat CEO to resign as Europe auto group's boss
Marchionne: "It's a bloodbath of pricing and it's a bloodbath on margins."
BERLIN -- Volkswagen Group threatened to leave European auto industry group ACEA in response to comments by Fiat CEO Sergio Marchionne about VW's pricing strategy.
The threat highlights the rising tensions in the industry as vehicle sales slump in Europe.
Marchionne said VW is being too aggressive in its pricing strategy when conditions are already tough in the European auto industry.
VW denied the accusations. The comments "show once again that Marchionne is not qualified to be ACEA president," VW's chief spokesman, Stephan Gruehsem, said in a statement, calling for the Fiat CEO's resignation from the post. VW is also considering leaving ACEA, he said.
Fiat declined to comment on Gruehsem's remarks when contacted by Automotive News Europe on Friday.
"VW continues to ramp up the pressure," said Max Warburton, a London-based analyst with Sanford C. Bernstein. "Everyone in the industry comments on it and knows it. It may be ugly for those on the receiving end, but isn't this how free markets are supposed to work?"
Marchionne is serving a one-year term as president of ACEA, which lobbies the EU on behalf of the auto industry. He took over from Daimler CEO Dieter Zetsche on Jan. 1. ACEA members include all European automakers as well as companies such as Ford, General Motors and Toyota that have manufacturing operations in the region. Its board elects a new president every year.
Marchionne told The International Herald Tribune on Thursday the European auto market is the toughest he has ever experienced. "It's a bloodbath of pricing and it's a bloodbath on margins," he said.
VW Group sales chief Christian Klingler dismissed Marchionne's remarks. "We're not too aggressive," Klingler said on a conference call on Thursday. "We play in a competitive environment," he said.
The European auto market faces an "elevated risk," as competition has increased significantly, Klingler said. Auto pricing in Europe is "tense" and "pressure" will continue in the coming months, he added.
The spat highlights the tension between VW, which on Thursday reported record first-half profit, and European competitors such as Fiat and PSA/Peugeot-Citroen whose losses in the region are mounting.
Marchionne again called for the European Commission to step in and help the industry confront the huge overcapacity problems, The International Herald Tribune said.
"What they should do is coordinate a rationalization of the industry across the producing companies," he said. "The ones that really have not acted on this are the French and the Germans, who have not taken out any capacity at all."
In April, Marchionne criticized German automakers for rejecting EU intervention that would help the region's automakers reduce excess production capacity.
"The issue is on the table, and we're trying to understand what the German position is," Marchionne said at a Fiat press conference April 4. "The three German makers appear united against an EU intervention. But no one can say that overcapacity is not a problem in Europe."
Not the first time
Marchionne is not the first to question VW's pricing.
PSA CEO Philippe Varin told analysts at Morgan Stanley in May that he believes VW is using its massive China earnings to cross-subsidize low prices in Europe.
During a presentation last month at the Automotive News Europe Congress in Monte Carlo, Bernstein Research analyst Max Warburton said that he "absolutely" agrees with Varin's assessment.
Warburton said that while VW Group's products are more attractive and the brand is better managed than in the past: "Let's be honest, price is the biggest single reason for this" huge increase in market share.
VW Group has boosted its western European market share to 23.7 percent after six months this year, compared with 18.1 percent in 2004.
As Europe's most profitable carmaker, VW Group has been able to borrow at cheaper interest rates than many of its rivals. That advantage has translated into better deals for consumers, particularly in France.
"There's been a slide since the start of the year, with German carmakers borrowing at around 2 percent and the French at 6 percent," Philippe Houchois, an analyst with UBS in London, told Bloomberg. "This difference in financing costs may lead eventually to a gradual difference in competitiveness."
French buyers pay as little as 1.9 percent annual interest on 10,000 euros ($12,280) in financing from VW, the company says. From Peugeot, the same loan would cost about 11.6 percent annually, according to the automaker's Web site. Renault says it charges 5.9 percent.
History of sparring
Fiat and VW and have a history of sparring in public.
On March 23, VW's Klingler said that Europe's car industry needs no help from Brussels to close factories. Asked what he thought of the comment by VW's Klingler, Marchionne said he would have preferred that it had been made by CEO Martin Winterkorn rather than by one of his lieutenants. "When Fiat speaks, I speak for Fiat," Marchionne said.
In addition, VW executives routinely express interest in purchasing Fiat's troubled Alfa Romeo brand despite Marchionne's refusal to divest the unit.
VW's influential supervisory board chairman, Ferdinand Piech, caused an uproar years ago when he told reporters that Fiat "isn't struggling enough yet" to be forced to sell Alfa Romeo.
On Thursday, VW posted higher second-quarter profits and reconfirmed its full-year target of flat earnings over 2011 despite large investments in new vehicles and intensifying price pressure in Western Europe, where new car sales have been declining for months.
Analysts and industry executives expect the market to drop further in coming months with high unemployment and rising economic uncertainty.
Analysts estimate that the European auto industry has about 20 percent of overcapacity. The glut weighs on earnings and makes it difficult for many automakers to operate profitably in the region.
Fiat's finances have benefited from its majority stake in Chrysler Group, which is generating profits again following its restructuring under U.S. Chapter 11 bankruptcy in 2009.
But new-car demand in Fiat's home market, Italy, has been plummeting because of the tough austerity measures.
Reuters, Bloomberg, David Phillips, Douglas A. Bolduc contributed to this reportContact Automotive News