European Automakers Hope Technology Can Lure Younger Buyers

Source: By JACK EWING, New York Times • Posted: Monday, September 9, 2013

Franziska Kraufmann/European Pressphoto Agency

A Mercedes-Benz S-Class car in a wind tunnel. The latest edition can steer and brake by itself.

FRANKFURT — Sometimes it is more fun to dream about the future than to dwell on the present, especially if you are a European car executive.

With sales at their lowest level in two decades, auto industry managers gathering for the Frankfurt auto show next week will be doing their best to focus on shiny new technologies rather than on the European car market, which, in contrast to the thriving market in the United States, is in a terrible state.

The buzz at the show, which opens to the public on Wednesday, is likely to be about new battery-powered cars and vehicles that are able to drive themselves. Those are more cheerful topics than auto sales, which have fallen 20 percent in Western Europe since the financial crisis began in 2008 and are at their lowest level since 1993.

Only European carmakers with substantial sales in the United States or China — BMW, Mercedes and Volkswagen — have escaped relatively unscathed.

The emphasis on technology is more than just a distraction from market misery. Carmakers are desperate for ways to excite young buyers, who are increasingly apathetic about car ownership. The push toward cars that are rechargeable and loaded with software is part of a search to make automobiles as essential to young adults as smartphones. Otherwise, there is a big risk that auto sales may never reach their previous peaks even if the European economy keeps improving.

“There are products that are hipper for young people than cars,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in northern Germany and an industry analyst. “The car companies are still using the old marketing pitch — more horsepower. That doesn’t speak to young people any more.”

Interest in battery-powered cars has faded after disappointing initial sales, but it could pick up again this year with the market introduction of the BMW i3. The vehicle has perhaps the most revolutionary new design by an established carmaker in years, not only because of its electric propulsion system but also because the passenger compartment is made of carbon fiber rather than steel, to save weight and extend the distance the car can travel between charges.

There is also speculation that Continental, a German parts supplier, will announce an alliance with Google next week to further develop self-driving cars. A spokesman for Continental, which will hold a news conference at the auto show on Tuesday, declined to comment.

As such initiatives illustrate, it is no longer enough for a car to take a person from one place to another without breaking down. A car must be green, so the owner does not feel guilty driving it. And being in the car should not interrupt the perpetual connectivity that many younger people take for granted

BMW is going to extremes to make the i3 the most carbon-neutral car on the road. A wind turbine outside the BMW factory in Leipzig provides power for the i3 assembly line, and the carbon fiber for the passenger compartment comes from a factory in Washington State that uses hydropower. And of course the i3 itself has no tailpipe emissions (unless buyers choose a range-extender version that has a small gasoline motor).

With a price of about $42,000 in the United States, the i3 will be an option only for higher-end buyers when it arrives in showrooms by the middle of next year, though government incentives could lower the price by more than $7,000. But since BMW’s clientele already tends to be wealthy and urban, the company may be in a better position than other carmakers to find a market.

“What the mobile phone did for communication, electric mobility will do for individual mobility,” Norbert Reithofer, the chief executive of BMW, said during an introduction event for the i3 in New York in July.

Despite Mr. Reithofer’s enthusiasm, no one expects battery-powered cars to sell in large numbers soon, and certainly not to solve the industry’s deep-seated problems. About 77,000 electric vehicles were sold in the United States in the last 12 months, far more than in any other country, according to Roland Berger Strategy Consultants in Munich. That number, which includes cars like the Chevy Volt that have range-extender motors, is tiny compared with the 14.5 million cars of all types sold in the United States last year.

Modest expectations may also be in order for self-driving cars. Cars are coming on the market that can relieve drivers of some of the tedium of driving in traffic or on the highway. The latest edition of the Mercedes-Benz S-Class, introduced this year, can steer and brake autonomously in traffic or on the autobahn.

The S-Class technology inspired a fake commercial by a group of German film students. The professional-looking spot shows the Mercedes automatically stopping for children in a turn-of-the-century Austrian village but mowing down a lad who turns out to be a young Adolf Hitler. The tag line: detects danger before it occurs.

Google already has a small fleet of self-driving cars, but analysts are skeptical about how long it will take the technology to reach the market because of the cost and unresolved legal issues. If a self-driving car gets into an accident, for example, is the manufacturer liable or the driver?

While they search for ways to become hip again, the European carmakers have been cutting costs and dealing with factories that are operating well below capacity. Underused factories are ruinous for carmakers because many operating costs remain the same no matter how many cars a plant produces. In Italy, home of Fiat, factories are producing only 40 percent as many vehicles as they could, according to estimates by the Organization for Economic Cooperation and Development.

European carmakers have been shutting down plants or sometimes idling them temporarily to avoid the political outcry that accompanies a plant closure. General Motors, which makes Opel cars in Europe and is planning to stop producing cars at a plant in Bochum, Germany, reduced its loss on the Continent to $100 million in the second quarter from $400 million a year earlier.

PSA Peugeot Citroën, which may be the most troubled big carmaker in Europe, cut its loss for the first half of this year to 510 million euros, or $672 million, from 657 million euros a year earlier, in part by laying off some workers. At the Frankfurt show, it will present a redesign of its Peugeot 308, which competes with cars like the Volkswagen Golf. That is a crucial segment in Europe, and much rides on whether the car becomes a hit.

“They’ll be hoping for a big lift,” said Tim Urquhart, an analyst at IHS Automotive. “They need to compete in that mainstream market and get some serious market share.

Over all, Mr. Urquhart said, the European car market may be close to its nadir. “In the medium term, it will stabilize and then bump along the bottom for a bit,” he said. “Everyone is asking me when are we going to get back to precrisis levels. It’s going to be a long time.”

The German carmakers — Mercedes, BMW and Volkswagen — have avoided the worst of the sales crisis, partly because they have been able to sell more cars in the vibrant American market, where Peugeot and Renault are not present. American auto manufacturers added 19,000 jobs in August, according to official figures published on Friday, and sales in the United States are at their highest level since 2007.

But in Europe, even sales in Germany are suffering. That is especially disturbing news for the auto manufacturers, since cars are Germany’s biggest export product and something of a national obsession. Chancellor Angela Merkel, who faces national elections this month, will officially open the Frankfurt auto show on Wednesday, a measure of the industry’s importance.

It bodes ill for the German market when, as Mr. Dudenhöffer of the University of Duisburg-Essen pointed out, the average age of a car buyer is 52 and annual sales have fallen below three million for the first time since the fall of the Berlin Wall.

“Google and Facebook are taking away the young customers,” Mr. Dudenhöffer said. “But none of the automakers has a big idea, none of them.”