Briefing for '98: Rough road for car firms

Daimler-Benz executives will get some help this week in deciding whether to bid for Rolls-Royce. The German company's car division, Mercedes- Benz, is showing off its Maybach concept car at the North American International Auto Show in Detroit.

And reaction to the pounds 180,000 luxury car, a competitor to Rollers and Bentleys, will help the Merc parent make up its mind whether it makes more sense to start manufacturing the Maybach or to make an offer to Vickers for Rolls-Royce.

BMW, a likely rival in the Rolls bidding, will hardly be put in the shade. Buoyed by the success of its Z3 roadster, the company will display its two-seater Z07 roadster - its latest luxury sports car concept. BMW is also hoping the Americans' love-affair with off-roaders will extend to its Land Rover division's new Freelander vehicle.

But the Detroit spotlight will be on a third German company as Volkswagen unveils the first major revamp in 50 years to the world's best-selling car, the New Beetle. The car, now with the engine at the front, is being built on the same chassis as the VW Golf but is expected to cost around 10 per cent more.

VW is hoping that Sixties nostalgia will rekindle sales in North America where it has been lagging behind Mercedes and BMW.

The weak mark has helped German car makers keep prices competitive, yet behind the fanfare, Europe's car manufacturers face a tough struggle this year to improve profits in their local markets.

Intense competition will drive down margins. Car makers are expected to trim prices and pack their models with more options to attract the continent's expected 13.3 million buyers.

Volkswagen upped the ante last October by reducing the price of its new Golf by 1.4 per cent and packing it with about pounds 1,000 of extra equipment as standard.

"King customer is going to have a marvellous time and the bean counters at the car manufacturers are going to hate it," said Peter Schmidt, an analyst at Automotive Industry Data.

The dominance of the German manufacturers is likely to hurt Ford Europe, which is bringing out its new models towards the middle and end of the year. By that time the new Golf will have had time to chip away at its customer base.

Daimler will need as much of a head start as possible to counteract the disastrous publicity after both its new Mercedes A-Class small car and its Smart micro car turned over in road tests. After a redesign costing nearly pounds 200m, the A car starts selling next month, and the Smart car in October.

Yet the biggest loser this year, at least on its home turf, will be Fiat which has a 44 per cent market share in Italy. Last year, car registrations soared more than 40 per cent, boosted by government incentives to trade in old cars.

With the incentives ended, analysts expect the Italian car market to fall about 20 per cent in 1998.

To compensate, Fiat is likely to target France in an attempt, which analysts reckon will succeed, to prevent its total world sales from falling.

Renault and Peugeot Citroen are expected to revive somewhat in the domestic market after the withdrawal of government incentives drove sales down by 21 per cent in 1997.

However, sales, are not predicted to return to 1989's peak of 2.3 million cars a year until the next century.

According to Sabine Bluemel, an analyst at IMI Sigeco: "Anticipated further improvement in consumer confidence and private consumption, together with new model introductions by all three French brands should lead to a recovery in the French passenger car market in the next three years."