Germany's car industry needs to speed up work on new technology and shift its focus to smaller models to remain competitive with Chinese and Indian companies, an Ernst & Young LLP consultant said.
Automotive executives in Europe indicated in a survey that they may put off research spending, Peter Fuss, a partner at Ernst & Young, said at a press conference in Frankfurt yesterday. Innovation ranked eighth among managers' immediate priorities, rising to second place only in three years.
Volkswagen AG, Bayerische Motoren Werke AG and Continental AG are among manufacturers that have cut production as they confront the worst auto market in six decades. General Motors Co. and Ford Motor Co., the two largest U.S. carmakers, are selling European units as they reorganize to stem losses. Half of the respondents in the August survey of 300 executives at carmakers and suppliers predict industry consolidation in 2010, Ernst & Young said.
"We see a great danger that urgently needed investment in state-of-the-art technology, particularly for engines and reduction of fuel consumption, will succumb to cost cutting," Fuss said. "Developing new engine technologies has become so expensive that we'll see an increasing number of mergers and cooperation agreements."
Better or Cheaper?
Luxury auto manufacturers in Germany may need to look at building smaller, more fuel-efficient models to win back customers, Fuss said. About 70 percent of managers in the survey foresee sales of small cars increasing until 2014, while only 19 percent predict delivery gains for high-end models and 45 percent expect a decline, according to Ernst & Young.
Daimler AG, the world's second-largest luxury automaker, said yesterday it's expanding capacity for the smallest models in its Mercedes-Benz product line. Tata Motors Ltd., the Mumbai- based automaker that bought the Jaguar and Land Rover luxury marques in the U.K. last year, plans to begin European sales of the $2,500 Nano, the world's cheapest car, in 2011.
"Auto manufacturers have to be prepared for increasing polarization in the industry: either the car is better or it's cheaper," Daimler Chief Executive Officer Dieter Zetsche said at a small-car plant in Rastatt, Germany, where he announced a 3 billion-euro spending plan for the company's German plants.
