PSA, Fiat, Opel, others at risk from LCV shake-up
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Europe's light commercial vehicle sector is headed toward a major shake-up that is likely to put added financial pressure on struggling brands such as Peugeot, Citroen, Renault, Opel and Fiat.
Longtime partners are considering new alliances while Asian competitors are getting ready to take a larger piece of the market, which had a double-digit sales decline last year.
There is a lot at stake because the LCV sector has proved to be a gold mine. The profit margin on a van is estimated to be as high as 9 percent, which is comparable to a premium vehicle.
For many automakers, LCVs are a financial savior.
"With the most Europe-centric OEMs having struggled just to breakeven in recent years, we believe LCV profits have been subsidizing heavy passenger car losses," said Max Warburton, an auto analyst at Bernstein Research.
Most automakers do not break out the financial results of their LCV businesses and none provides by-region results. Volkswagen Group does provide global numbers for its LCV division, which reported a 300 million euro operating profit after three quarters of 2012, down from 328 million euros in the same period the year before.
European brands and Ford also have had limited competition in the LCV sector from Asian rivals. Hyundai and Toyota, however, plan to put more emphasis on the market, which includes car derived vans, panel vans and pickups with a total gross weight of less than 3.5 metric tons.
Changing alliances
Last year, the European sales decline for light commercial vehicles (13 percent to 1.44 million) was worse than that for passenger cars (8 percent to 12.6 million). Put another way, 2012 European LCV sales were 36 percent below a peak of 2.23 million in 2007 while passenger car sales were down 22 percent last year compared with a 16-million peak, also in 2007.
Warburton expects weak LCV sales to affect the balance sheets at PSA, Fiat, Renault and Ford of Europe and also have an impact at Volkswagen Group and Daimler. Future profits at Europe's leading LCV makers also could suffer because of an anticipated reshuffle of long-running partnerships.
There is uncertainty in market for the first time in decades because of two relatively new automaker alliances. One is between PSA and General Motors' European arm, Opel/Vauxhall, which was formed last year.
The other is between Renault-Nissan and Mercedes-Benz parent Daimler, which was formed in 2010. PSA and GM have avoided commenting on whether they will extend their strategic alliance to include LCVs, partly because each automaker has LCV partners. PSA and Fiat cooperate on large vans. Their 35-year-old joint venture in Italy, which is called Sevel Sud, is set to continue operating until 2019. Fiat, however, last year pulled out of its other van joint venture with PSA, which is called Sevel Nord and based in France. Fiat withdrew because it started importing U.S.-made large minivans from Chrysler. To fill the gap left by Fiat, PSA will supply vans to Toyota from Sevel Nord.
For years, Opel/Vauxhall has gotten large vans from Renault and medium-sized vans from Fiat, but these deals expire in mid-decade, leaving PSA as a likely replacement partner for the work.Renault is already working together with Daimler. The French automaker began supplying a rebadge of its Kangoo to Mercedes-Benz, which sells it as the Citan. Press reports suggest that VW plans to stop purchasing the Crafter large van from Daimler by 2016. This would provide another opportunity for Renault and Daimler to work together.
"There are certainly opportunities out there for a large shift in the alliances within the LCV sector, especially with the gradual reduction of the Sevel ventures. Key amongst this is the potential to expand the PSA and GM alliance into the LCV sector," said Michael Gartside, senior manager in charge of the Autofacts research team at PricewaterhouseCoopers.
Asian threat
Another factor that is expected to affect Europe's LCV market is the entry of new competitors from Asian brands. The EU's free trade agreement with Korea is progressively reducing import tariffs on LCVs from the country. The EU is in talks with Japan on a similar trade pact.
In addition, Toyota and Hyundai have taken steps to have LCV production in Europe. Toyota, which sold just 34,000 LCVs in Europe last year, will get a mid-sized van made by PSA starting in the second quarter. The ProAce is a rebadge of the Peugeot Expert/Citroen Jumpy. The Japanese and French automakers said they will cooperate on developing the future generation of the van. Toyota, however, does not plan to become an equity partner in Sevel Nord. The automakers said they will cooperate on LCVs until at least 2020.
Hyundai, which sold 3,000 LCVs in Europe last year, announced in November that it would spend $200 million to expand its cooperation with Karsan. The Turkish truck maker will start producing vans and minibuses for Hyundai at the end of 2014. Karsan has been making light trucks for Hyundai since 2011. The partners aim to make a combined 200,000 vans, trucks and buses in the first seven years of the pact. The vehicles will be exported to Europe, the Middle East, North Africa and Russia.
Even after the Asians build up their LCV presence in Europe, it will be difficult to gain ground against the current leaders. PSA, Renault-Nissan, VW Group, Ford, Fiat and Daimler control 85 percent of the market today.
National champions
National brands such as VW, Fiat, Peugeot and Renault also are very strong in their home markets. For example, the domestic players dominate in France, which is Europe's largest LCV market (see box, below). Two out of every three LCVs sold in the country are made by either Peugeot, Citroen or Renault.
Fiat controls more than half of the Italian LCV market while Ford is the largest player in the Great Britain. VW Group and Daimler are the leaders in Germany, which ranks third overall in European LCV sales.
1. France 384,045 -11
2. Great Britain 239,641 -8
3. Germany 215,909 -6
4. Italy 106,152 -34
5. Spain 76,999 -26
Other markets 303,209 -13
Total 1,437,192 -13
Source: JATO Dynamics
You can reach Luca Ciferri at lciferri@crain.com.
