European cars rift deepens as firms clash on policy

Europe’s troubled mass-market carmakers are furious with Volkswagen for ramping up production at a time when the continent faces huge overcapacity, but the profitable German market leader shows no sign of slowing down to save its rivals.

A feud between Europe’s biggest car makers burst into the open when Fiat boss Sergio Marchionne accused Volkswagen of contributing to a “bloodbath” by seizing the euro zone’s debt crisis to wage a price war in Europe.

Volkswagen, which dominates the European car market with a share of 23.9 per cent, responded by threatening to quit the region’s main industry body, the European Automobile Manufacturer’s Association ACEA, unless Marchionne gives up the body’spresidency.

The quarrel has divided Europe’s successful producers – above all VW – from its loss-making or barely-profitable rivals including Fiat, Peugeot-Citroen, Renault and General Motors’ Opel division.

It makes it unlikely that the struggling companies will persuade Volkswagen to back their call to lobby European policymakers to encourage steps to cut capacity in the industry, reducing barriers to closing factories and cutting jobs.

For their part, Volkswagen and other successful companies that make profitable larger and higher-end vehicles, say governments are manipulating carbon dioxide emissions standards to penalise luxury marques and help wounded mass-market rivals.

“The financial crisis has driven a wedge between the rich and poor European producers,” said Stefan Bratzel, head of the Centre of Automotive Management think tank near Cologne, Germany. “There’s nothing like a united voice on policies which is crucial to solve problems. Companies are playing hardball.”

Tensions may increase further as auto executives return from summer holidays, which VW used to run regular shifts at its main factory on demand for the Tiguan compact SUV.

Philippe Varin, head of Peugeot which plans to cut 14,000 workers to stem a widening operating loss that reached €819 million in the first half, says the dispute has already thwarted a concerted approach to tackling the chronic oversupply of cars in Europe.

Europe’s mass market carmakers are trapped between slowing economies and heightening competition in low-profit volume segments from Asian peers including Toyota and Hyundai.

They have responded by offering discounts that for many firms mean they lose money. Peugeot, which delivers more than half of its cars to a shrinking European market, lost an average €789 before interest and tax in the first half per brand vehicle sold, while Fiat lost €142, a survey by the CAR Centre of Automotive Research at the University of Duisburg-Essen showed.