PARIS/MILAN -- Volkswagen AG, Fiat S.p.A. and General Motors Co. are offering cheap financing and cash rebates to woo hesitant European customers as car demand shows signs of deteriorating because of the region's debt crisis.
Doubts about the stability of the region's economy has prompted some customers to back off purchases for the time being.
A growing number of buyers have canceled orders in the past week, including two London investors who were planning to buy vehicles from Daimler AG's Mercedes-Benz, said Simon Empson, managing director of discount UK car Web site Broadspeed.com. "There's no good news," said Empson. "It's a real problem, because there's nothing in the till" for governments to stimulate the economy.
Consumers are rethinking major purchases after the European Central Bank started buying Italian and Spanish government bonds this week in an effort to stabilize the euro zone following Greece's fiscal meltdown more than 18 months ago.
J.D. Power & Associates lowered its 2011 forecast for car sales in western Europe after Italy led an unexpected decline in July deliveries. And while, so far there haven't been new discounts in North America, concern about consumer spending is spreading. The consulting firm now predicts industrywide demand will decline 1 percent to 12.84 million vehicles, compared with a previous forecast for a small increase to 12.99 million.
"We were expecting sales to be weaker, but the Italian market running rate came in at the weakest in a very long time," said Jonathon Poskitt, J.D. Power analyst in Oxford, England. "Confidence is at a low in some of the key markets."
Honda Motor Co. CFO Fumihiko Ike said U.S. sales may run below 12.4 million light vehicles this year and that the Tokyo-based automaker may revise its full-year profit forecast, depending how long North American and European markets are in turmoil.
"There's a lot of turmoil in the business and turmoil means uncertainty, so we're a little unsure of these numbers," Dan Akerson, GM's CEO, said at an investor meeting Tuesday about the automaker's forecast for at least 13 million deliveries industrywide this year including medium- and heavy-duty trucks.
In Europe, concern about a budget crisis spilling over into the broader economy led to a 20 percent decline in the Stoxx Europe 600 Index over the past six months. The auto industry has been hard hit, with the Euro Stoxx Automobile and Parts Index dropping 18 percent in August.
"The stock-market crash is definitely a growing factor," said Ernst-Robert Nouvertne, who runs two VW dealerships in Solingen, about 25 kilometers (15 miles) northeast of Cologne. "People are putting off purchases to wait and see what's happening with the economy."
"All told, business has become tougher," said Nouvertne, the German dealer whose stores are offering discounts on VW and Skoda models including a deal for as much as 5,415 euros ($7,715), or 17 percent, off a 1.6-liter diesel VW Passat wagon. "Demand has shrunk by a quarter since May compared with the first four months."
Volkswagen expects demand in its home western European market to be "burdened" in the second half by state debt problems and the expiration of sales incentives, the company said July 28. World economic growth may slow somewhat because of rising inflation and the persisting budget crisis, VW said at the time. Still, VW is projecting higher operating profit on record sales of more than 7.2 million cars, SUVs and vans.
The manufacturer, which also owns the Audi, Skoda and Seat brands, sold more than 4 million vehicles in the first half months for the first time on high demand in China, the world's largest automobile market.
GM's Vauxhall brand in the UK is offering zero-percent financing plus a credit of at least 500 pounds (567 euros) on vehicles purchased before Sept. 30. Buyers of the Insignia sedan or Zafira minivan get a deposit credit of 1,000 pounds, and all models under the program include the company's 100,000-mile warranty.
"We're seeing a very tough retail market in the UK," said Denis Chick, a Vauxhall spokesman in Luton, England. "It's quite a challenge for us all." Last month, Fiat began offering UK customers a version of the Panda compact with air conditioning and 14-inch alloy wheels with a 22 percent discount. Renault SA is promoting savings on the Megane hatchback of 1,600 pounds, or 14 percent.
"Sales have just dropped like hell in the last 10 days to two weeks," said David Hoggarth, owner of Huttons Ltd., a Fiat dealer in southwest England. "We know we're not alone in this. Our manufacturer says that other dealerships are in the same situation. Everybody's sweating at the moment."
Carmakers are stepping up discounts to support sales in France after the market fell 5.9 percent in July, led by declines by Fiat, Ford Motor Co. and Renault. PSA/Peugeot-Citroen is offering the Citroen C1 mini for 6,490 euros, 9 percent lower than the list price. The gasoline-powered Renault Twingo is selling for 34 percent off.
Fiat's home market in Italy slumped to a 1.45 million annualized sales rate in July down from 1.75 million earlier this year, according to J.D. Power.
"We are extremely worried as the car market in Italy is sinking even more after the markets crisis," said Filippo Pavan Bernacchi, head of Italian dealer association Federauto. "Carmakers are fighting on prices to keep people walking into our showrooms. I don't exclude that some carmakers are selling their vehicles below costs to keep the market share."