The Race to Build Cheaper Cars

By Chad Thomas |

April 13 (Bloomberg) -- European car sales fell in March for the second straight month, led by DaimlerChrysler AG, Bayerische Motoren Werke AG and Renault SA, after a tax increase reduced purchases in Germany.

Sales declined 0.3 percent to 1.82 million cars and sport- utility vehicles from 1.83 million a year earlier, the Brussels- based European Automobile Manufacturers Association said today in a statement. First-quarter deliveries fell 0.2 percent to 4.22 million vehicles.

Germany, Europe's largest economy, posted a 6.6 percent drop in car purchases in March after the government raised sales taxes at the beginning of 2007. Customers have also held off buying until Renault, BMW and DaimlerChrysler's Mercedes-Benz brand introduce new models. Renault Chief Executive Officer Carlos Ghosn in February forecast a ``stable'' European car market.

``I'm not looking for a significant gain on the year-on-year figures once 2007 is through,'' Stephen Pope, head of equity research at Cantor Fitzgerald in London, said. ``This doesn't bode well for bottom line.''

Shares of DaimlerChrysler in Frankfurt fell 47 cents, or 0.8 percent, to 60.80 euros. BMW shares rose 24 cents, or 0.5 percent, to 44.94 euros. Renault stock in Paris gained 61 cents, or 0.7 percent, to 91.07 euros.

The cost of a credit-default swap based on a 10 million-euro ($13.5 million) contract on carmakers' debt today was unchanged. A DaimlerChrysler contract totaled 31,000 euros, BMW remained at 9,000 euros and Renault was at 22,000 euros.

BMW, Mercedes Models

BMW, the world's biggest maker of luxury vehicles, introduced a new version of the X5 SUV last month and Mercedes- Benz, the second-biggest, started selling a revised C-Class sedan. Renault, France's No. 2 carmaker, will bring the new Twingo small car and Laguna midsized model into showrooms in the second half.

Munich-based BMW and Stuttgart, Germany-based DaimlerChrysler were hurt by their home market's increase in value-added tax to 19 percent from 16 percent.

``The German sales-tax increase has pressed the sales brake pedal,'' Pope said. ``The impact has been magnified as consumers wait for new model availability. One has to question the length of time between launching new models and shipping them into the showroom.''

DaimlerChrysler's Forecast

European deliveries by BMW fell 5.4 percent to 90,593 vehicles. DaimlerChrysler's sales, including the Smart and Chrysler brands, fell 6.3 percent to 98,720 cars and SUVs. DaimlerChrysler in January forecast unchanged worldwide sales this year for the Mercedes Car Group, which groups Mercedes-Benz and Smart.

BMW CEO Norbert Reithofer said in February that he expects pretax profit to rise in 2007, the second year in a row, helped new versions of the Mini small car that went on sale in November, the 1-Series car and SUVs.

Renault posted a 9.4 percent drop in European sales to 146,520 vehicles. Ghosn said in February that operating profit as a proportion of sales will rise to 3 percent this year from 2.6 percent in 2006 because of the new models.

Sales Gains

The European car market's decline last month was buffered by gains at PSA Peugeot Citroen, Toyota Motor Corp., Fiat SpA, Volkswagen AG and Ford Motor Co.

Peugeot, Europe's second-largest carmaker, posted a sales gain in the region of 0.3 percent to 230,080 units. Chief Executive Officer Christian Streiff plans to increase profit at the Paris-based company after a 127 million-euro ($167 million) second-half loss.

Shares of Peugeot in Paris gained 2.35 euros, or 4.4 percent, to 55.96 euros on speculation that the carmaker denied today that it may sell the Faurecia components division.

Sales by Toyota, the world's second-largest carmaker, surged 6.2 percent in Europe last month to 110,110 vehicles, with the market share gaining to 6 percent from 5.7 percent a year earlier, on new versions of the RAV4 sport-utility vehicle and Yaris small car. The Toyota City, Japan-based carmaker said in September it expects to sell 1.3 million vehicles annually in Europe by 2008.

GM's European Decline

The Japanese company aims to sell 4 percent more vehicles globally this year, potentially surpassing Detroit-based General Motors Corp. as the world's largest carmaker, with popular models such as the Camry and Prius cars. GM's European sales last month declined 1.6 percent to 201,611 vehicles, led by a 14 percent plunge at the Saab luxury brand.

Fiat boosted sales 6.3 percent to 136,171 vehicles, while market share rose to 7.5 percent from 7 percent, on demand for the Grande Punto. Turin, Italy-based Fiat also began selling the Bravo compact model in February.

Deliveries by Wolfsburg, Germany-based Volkswagen, Europe's largest carmaker, gained 2.2 percent to 341,755 vehicles, on an 8.2 percent gain at the Seat Spanish unit and 5 percent growth at the Audi luxury brand. Sales at the namesake Volkswagen brand slumped 1.1 percent.

Volkswagen Chief Executive Officer Martin Winterkorn has said 2007 will be a ``difficult'' year for the Volkswagen brand, which has no major product introductions until next year.

Ford, the world's third-largest carmaker, sold 1.3 percent more vehicles in Europe last month to 217,639 vehicles. Sales of its Volvo brand surged 6.6 percent to 30,752 units, while the main Ford brand rose 1.9 percent to 167,836 vehicles.