Thursday, September 8, 2005

Autoshow: Chinese cars step into Frankfurt show limelight

By Michael Shields / Reuters

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FRANKFURT -- Petrol prices have exploded. Downward pressure on car prices won't go away. Production costs jeopardise western Europe as a place to build autos in volume.

Just when you thought the global car market was tough, the Chinese go and show up at the world's biggest auto show.

Only a handful of low-cost Chinese cars will be on display at this year's Frankfurt car show starting on Monday, and they still need to build up dealer and maintenance networks.

But their mere presence underscores competitive pressures on an industry still tightly squeezed by chronic overcapacity.

"It is not just the Koreans and the Japanese. Now we have the next wave coming. It's getting tighter and tighter for the indigenous car manufacturers" in Europe, said Sabine Bluemel, a car sector analyst at Banca IMI in London.

The Landwind sport utility vehicle, made by a unit of Jiangling Motors Group, leads the pack. Priced at around 17,000 euros ($21,130) -- around half that of its nearest rival -- the model established a European beachhead for Chinese cars in July.

Geely Automotive is also displaying a range of models, and the Zhonghua sedan made by Brilliance China Automotive Holdings -- BMW's joint venture partner -- can be admired before thousands of them reach Germany later this year.

"The Chinese will probably try to attack the market through price," Luca De Meo, head of the Fiat brand for the Italian carmaker, told Reuters in Turin this week.

"I am really interested to know how they are going to move from price to product. We need to move Fiat up (in the market) because the fight beneath will be very serious," he added.

NEW MODELS, OLD PROBLEMS

A new scrum touched off by cut-price competition is the last thing carmakers need as they grapple with lacklustre sales growth, high raw material prices and margin-denting incentives.

Car sales picked up in most major European markets in August, but the United States remains a problem for big U.S. carmakers as staff-discount-for-all schemes lose their allure.

Top executives from General Motors and Ford will be on hand in Frankfurt, but their media handlers play down chances they will have much substantive to say about efforts to cut their uncompetitive labour costs in North America.

Big European manufacturers such as Volkswagen face the same problem.

VW Chief Executive Bernd Pischetsrieder went so far as to say last month that European plants that cannot export at a profit to growth markets in Asia or South America -- even if the dollar stays weak for a long time -- face a bleak future.

Industry executives will also focus on the impact of record fuel prices that sooner or later will make consumers think twice about splashing out on fuel-thirsty SUVs and high-powered masters of the autobahn -- the auto world's real money spinners.

The trend is making even sceptical manufacturers like BMW beat a path to hybrids, the fuel-saving technology that yokes an electric motor and batteries to standard engines.

Honda Motor Co shows off its new Civic hybrid.

The Frankfurt show boasts 80 world premiers as manufacturers crank out new models to lure buyers into showrooms, even at the expense of the economy of scale that long production runs bring.

Three of the most closely watched will the top-end Mercedes-Benz S-Class executive car unveiled by new Mercedes boss Dieter Zetsche, Fiat's make-or-break new Punto and Volkswagen's new Eos coupe convertible. (Additional reporting by Jane Barrett in Turin)