BILBAO, Spain – Ford of Europe CEO John Fleming criticized rivals for slashing new-car prices in Europe to try to maintain their cash flows and production levels following the end of government-funded scrapping incentives.
“The tactic of excessive discounting is a short-term measure that only devalues brands and helps weaken the entire industry in the longer run,” Fleming told the Automotive News Europe Congress here Wednesday.
Last month, the average discount given by Opel's dealers in Germany was 12.8 percent off the list price. That beat the 12.4 percent savings given by Fiat, the traditional incentive leader in Germany, according to trade publication Autohaus PulsSchlag. The industry averaged rebates of 10.9 percent, the researcher said in its monthly survey.
Mass-market automakers such as Fiat, Opel and Ford have found it impossible to match the strong sales results they achieved last year because countries such as Germany, the UK and Italy have stopped programs that offered thousands of euros to people who traded in their old cars for newer, more fuel-efficient models.
Fleming blamed the latest wave of profit-killing incentives on the European auto industry's “chronic overcapacity,” a problem that the CEO says must be addressed for a true and lasting rebound to take place.
“It is estimated that we have 35 percent overcapacity in the European industry. A figure that's actually increased as we have gone through the recession,” Fleming said. “Yes, we need extra capacity to take advantage of the recovery in the market when it comes – but 35 percent just seems too much.”
He said the right way to deal with overcapacity is by making tough decisions, such as reducing production to better match customer demand.
“Many of us are already on this path to improved efficiency by reducing significant overcapacity in our businesses,” Fleming said. “But as an industry, the rest have to catch up.”