Since overcoming the financial crisis, Fiat has made an effort to increase its presence in the Americas. The Italian car-maker recently invested $500m in a manufacturing plant in Toluca, Mexico. The North American country enjoys free trade agreements with the more mature markets like the US and Canada and a few fresher Latin American countries such as Brazil. By moving production to Mexico, Fiat, and others like Audi, Nissan and Mazda, can sell their vehicles in these markets and avoid having tariffs slapped on their European-made models. An inviting prospect if you consider recent reports on US car sales and the burgeoning middle classes in Brazil.
While the European and Asian car-makers pile into the Americas, Ford is playing catch-up in another lucrative market for the sector, China. The US giant unveiled plans for a $760m plant in Hangzhou, soon after it disclosed it would invest $600m in a third plant in Chongqing. Volkswagen is also investing in China, dedicating $225 to a plant in Urumqi.
It's clear that the big car-making companies are waking up from their financial crisis-induced slumber and crossing oceans to gain access to new consumers and boost sales.
However, markets in the European Union look set to miss out on the action because of falling demand, uncertainty over the sovereign debt crisis and a large supply backlog. In fact, according to the European Automobile Manufacturers' Association, there has been a 7.7% decline in demand for new cars in the European Union for the first quarter in 2012 compared to the same period last year.
Fiat has felt some of the pain: though it reported good earnings for 2011, thanks to strong sales in the US and Brazil, it's suffered a €500m loss in Europe for the same period. Sergio Marchionne, CEO of Fiat and Chrysler, compared car-makers in Europe to orphans fighting for food, in an interview with the Financial Times: “If you don't see growth, whoever's left at the table is going to be left fighting for scraps of food".
Of course, it's not all doom and gloom on the continent, which has usually enjoyed a strong automotive sector. Eastern Europe will continue to grow as a new market, while the UK continues to attract investment thanks to its high-end production expertise and access to markets beyond Western Europe. But, unless a definitive solution is found to the eurozone crisis, Western Europe won’t take part in the resurgence that the industry is enjoying elsewhere. Until then, the biggest names in the industry will keep driving to the four corners of the world in search of better and safer roads to growth.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
