Another Blow to Car Sales in Europe

While most of the car industry's attention has been turned to the drop in Japanese car sales in China, there is increasing evidence that manufacturers that do business in Europe will suffer very long-term effects from the recession there.

Toyota Motor Corp. (NYSE: TM) and Honda Motor Co. Ltd. (NYSE: HMC) reported that their sales in the People's Republic fell by about half last month due to tensions between the two nations brought on by disputes over ownership of several islands. The two largest car companies in Japan and other manufacturers there are likely to suffer even when the dispute is settled, if it ever is.

Today, Fiat announced that it had thrown out its five-year plan for Europe, a plan that ran through 2014. CEO Sergio Marchionne said, speaking of Fiat's forecast for the region that it "is nonsense because the market won't be there. We will be updating our forecasts for '13 and '14 as a consequence."

Fiat is not the first car manufacturer to cut European production targets, and it will not be the last. General Motors Co. (NYSE: GM) has admitted that its long-suffering Vauxhall and Opel units face more losses, after those that have gone on for years. Ford Motor Co. (NYSE: F) also says weak European sales will damage its global prospects. Comments by the two American companies have pressed their stocks to near one-year lows.

Ford and GM can at least count on sales in the growing U.S. market. GM is tied with Volkswagen for the lead is sales in China, which is now the world's largest market for car and light truck sales. Fiat is nowhere near as lucky. It has only started to sell its products in America through Chrysler, a company in which it is the majority shareholder. If history is any guide, it will take Fiat years to gain market share in the highly competitive U.S. market, if it can do so at all.

Marchionne is not just saying Fiat is in trouble in Europe. With limited distribution outside the region, Fiat is in trouble, period.

Douglas A. McIntyre

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