Euro cars face bumpy road

October 30, 2001 Posted: 1400 GMT

LONDON (CNN) -- As the European auto industry suffers from a weakening demand, one of Europe's leading car industry analysts predicts a shaky year ahead for the industry.

Karl Ludvigsen, chairman of specialist automotive consultants Ludvigsen Associates (UK) Limited, told CNN demand is currently static and it could be up to 12 months before any upsurge is seen.

In the intervening 12 months he predicts some permanent and temporary job losses and plant closures across Europe but adds luxury cars could maintain profits on its sales to the U.S.

In addition to the September 11 attacks on the U.S., which is affecting people's job security making them less likely to make expensive purchases, Europe's markets also face tougher competition.

Japan and South Korea are taking traditional customers from the European with trendier models in an image-conscious industry where customers will not buy if they do not like what they see.

"Toyota's new Corolla will upset a lot of car makers in Europe. Toyota has developed a real knack for developing cars European's like," he said.

Overall, Ludvigsen says the year is not going to be devastating to Europe's auto industry and there is still a chance for reasonable money to be made, especially for German companies such as Volkswagen AG who upheld its profit forecast in the wake of a global economic slowdown.

VW said Tuesday its third-quarter net profit jumped 24 percent and vehicle sales remained on track for a slight rise this year in the wake of an economic slowdown.

Ludvigsen says it is not an accurate predictor of market conditions due to excess capacity. Instead, the market will only show its true colours early next year.

Ludvigsen predicts Ford will close plants in the next year, and Fiat will try to pull back to its home plant in Turin, Italy.

But the news is not all bad for Fiat, whose new Stilo is set to be a big hit for the Italian company.

The supplies industry, which accounts for 60 percent of each car made, will also be affected across Europe, but Ludvigsen says the industry is accustomed to the ebb and flow of the market and should survive the uncertainty.

Although Ludvigsen is not hugely hopeful for 2002, he believes the demand will revive this time next year to boost the industry.

"European automotive customers are product-sensitive. They want to know who has launched what and when. Fresh models will stimulate the market," he said.

Ludvigsen thinks there is a lesson to be learned in the declining sales that will serve the industry well in the future.

"Europe needs this downturn as a reminder it must be more efficient," Ludvigsen said.