In the 1980s European auto companies dismissed the Japanese success in the United States as the by-product of a relatively ignorant driving public that failed to understand or appreciate mechanically sophisticated automobiles.
They saw both American and Japanese cars as equally inferior compared to massproduced European cars. The loss of market share to the Japanese was viewed as isolated to the U.S. and more the fault of poorly made American cars. European auto companies saw themselves protected by superior engineering and sophisticated consumers who would never own an Asian car.
Of course, this ignored the fact that the major markets of Europe restricted Japanese access or limited their market share. Where the Japanese had free access, their share of the market in countries such as Finland, Switzerland, the Netherlands, Ireland and elsewhere often exceeded their penetration in the United States. Native European producers ignored the fact that the Japanese were building very competitive products and had developed production and product development processes that conferred enormous competitive advantage.
I might be able to forgive a company like Volkswagen for its ignorance of Japan. After all, Wolfsburg Germany is pretty far away from the epicenter of the car business. Volkswagen’s ownership by the state of Lower Saxony tilted its behavior in favor of maintaining jobs in the region rather than driving down costs to the Japanese level.
But what about General Motors in Europe and Ford Europe. Why hadn’t either of these subsidiaries responded to the Japanese threat even as their parent operations in the U.S. steadily lost share.
Unlike the United States, where manufacturers argued for years that they couldn’t make money on the small cheap cars sold by the Japanese, all European mass producers depended on small cars for much of their portfolios. There was a level playing field in terms of what each company had to offer in the marketplace. There was no chance to make huge profits on a Hummer or Suburban and ignore the mass market. In Europe, the market is simply varying degrees of small vehicles.
Despite many restructuring actions, neither GM nor Ford of Europe can claim that they now have the stuff to hold onto their historic market shares let alone make a reasonable return on their investments. We’ve seen what doesn’t work. Old factories with low productivity, poor quality, inappropriate and aging models and senior management that periodically rotates back to the states without ever fixing the problems are among the more obvious issues.
When Europe integrated its economies and opened all automotive markets to global competition in 2000, the inevitable happened….the Japanese and the Koreans gained share at the expense of local producers. Toyota opened a factory in France and launched the Yaris. With plenty of experience in assembling outside of Japan, they chose to operate in the notoriously difficult labor environment of France and immediately won converts to their cars. The Koreans have stepped up exports to Europe and despite the fact that European imports into Korea are few, Europeans are buying up their bargain-priced cars.
The overall Asian share of the European market is growing even as total vehicle demand stagnates. European consumers see value in these vehicles just as Americans did thirty years ago and it is likely that their share and manufacturing presence throughout Europe will continue to expand.
This leaves open the issue of how much additional restructuring will be undertaken by local producers. The answer is that European companies will have to do more than VW’s recent announcements of relatively modest cost cutting to survive. The answer isn’t to move up market or into trucks the way American companies did in the 1990s. The answer can only be to build competitively priced attractive small vehicles and to update each model in the range every four to five years. The next time a European auto company gets into trouble, there might not be another auto company to buy or invest in it.
Maryann Keller is a veteran auto industry analyst and author of the books “Rude Awakening: The Rise, Fall and Struggle to Recover at General Motors” and “Collision: GM, Toyota and Volkswagen and the Race to Own the 21st Century.”
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