E&Y and KPMG: Car industry in biggest crisis ever since '93

The European automobile industry is experiencing the biggest crisis since 1993. The demand for new cars in recession-bound Europe fell by 17% last year, the biggest annual drop since 16.9% downturn twenty years ago. Consumers are fretting over austerity measures, job security and rising living costs, and those who want to buy new cars are struggling to secure credit.

Figures distorted by car industry

According to Peter Fuss, partner at Ernst & Young advisory firm, the situation is even worse than the statistics point out. “The actual decline is much worse than the statistics would have us believe as sales figures for the year were artificially inflated as a result of self-registrations by dealers and automakers, especially in the region’s biggest market, Germany,” said Fuss.

The statement from Fuss is backed by statistics released by Frankfurt-based analysts’ firm Dataforce. In Germany, nearly 904,500 vehicles, or 29.3% of the new car market, were registered last year either to car manufacturers themselves or their dealers in Germany.

Discounting

"Further, to prevent a free fall in sales, automakers and dealers offered record discounts, which are likely to put a lot of pressure on their margins" the Ernst & Young partner added. John Leech, KPMG's UK head of automotive, backed his concullega: "We haven't seen the levels of discounting we've seen in 2012 for quite some time" he said.

Fired

The low demand for cars is having a massive impact on the financial performance of automakers. U.S. carmakers Ford and General Motors each faced a decline of 27% in their sales and even Germany's mighty Volkswagen suffered a drop in sales. And the pressure on costs is leading to massive layoffs in the car industries across Europe. Renault was the latest to announce job losses, following Honda, Ford, PSA Peugeot Citroen and Opel.

Asian tigers

However, South Korean brands Hyundai and Kia, which are making an aggressive push in Europe, proved it is possible to expand sales even during a grim downturn. They are successfully bringing out models with styling that has proved popular with buyers, gaining 10.5% and 6.8% respectively. The brands have been gaining ground, helped by a European Union Free Trade Agreement with South Korea, as they build a reputation for affordable small cars with long warranties.