Greener vehicles drive into the spotlight as Europe's biggest car show opens in Geneva today and carmakers hit back against a slowdown threatened by a weak euro and high raw material costs.
Toyota, Renault and Fiat all have new models to show, hoping to tap demand for small, fuel-thrifty cars spurred by soaring oil prices and government calls for less-polluting vehicles.
Fiat will revive its once-mighty Abarth racing badge for a high-powered version of the Fiat 500 city car while Renault rolls out sports versions of the Clio and Twingo.
The show will see the world premiere of the production version of Toyota Motor Corp's iQ, a tiny four-seater set to go into production this year.
Demand for the smallest cars account for 36.5 per cent of the western European market, according to J.D. Power Automotive Forecasting, and it is rising as carmakers aim to reduce CO2 emissions and avoid European Union penalties by selling smaller models.
Auto industry body OICA will hold a news conference on what manufacturers are doing to cut CO2 emissions and what they expect from governments in exchange.
"It is up to politicians to pass laws and to industrials to do their job. We therefore need to strike a balance between economic and ecological considerations which will enable sustainable development," Christian Streiff, chief executive of PSA Peugeot Citroen, told the car show's official magazine.
Last year in Frankfurt, European car chiefs said they needed more time to implement the rules and that the new regulations would raise car prices and could jeopardise jobs.
There will be several new sports utility vehicles, such as the Koleos from Renault and Ford's Kuga five-seat crossover model, while at the top end of the market, Nissan's Infinity FX luxury sports utility vehicle gets its European debut.
High-performance models will also make a splash, with Europe and Japan each lining up a showstopper.
Volkswagen unveils the Scirocco, a third-generation version of a model that was a bestseller in the 1970s and 1980s, while Nissan Motor Co rolls out its GT-R sports car which pulled the crowds at the Tokyo Motor Show in October.
VW, Europe's biggest carmaker, will also be in focus after announcing a $4 billion deal yesterday to take control of truckmaker Scania.
The move set the stage for the creation of a European truck giant if it merges the Swedish company with German rival MAN, in which VW owns 30 per cent.
European carmakers are increasingly pinning their hopes on emerging markets such as Brazil, Russia, India and China to increase overall car sales and restore profit margins.
That is not a one-way street. Several Chinese companies will be at the show, such as Brilliance and first-time exhibitor BYD.
They are taking aim at a European market already set to decline and if economic growth slows, the sales drop may be bigger.
Add to that a strong euro stunting exports and high raw materials prices eating into margins, and the mix is bleak for European makers.
"A one to two per cent drop is our balanced view of the Western Europe market performance this year but of course should there be worse to come from the credit crunch, this does present a downside risk to the forecast," said Jonathon Poskitt of J.D. Power.
The industry must also contend with rising prices for metals and energy, which it cannot pass on to clients.
"It's not acceptable for product prices to rise for our end users (car buyers)," Honda Motor Co CEO Takeo Fukui said last week.
The Geneva Motor Show opens to the media today and to the public on Thursday with Swiss firm Rinspeed's sQuba submersible car, the hometown favourite.
Styled on the Lotus Elise, its aquatic moves recall an older Lotus, the white Esprit from the James Bond movie The Spy Who Loved Me.