All is fair in love and war and new car sales are most certainly a battlefield, especially in Europe where almost every domestic carmaker is losing sales and bleeding cash due to the debt crisis that’s been raging on for the last three years.
In sharp contrast to PSA Peugeot Citroen, Fiat and Opel that are losing sales and money each day, VW has increased its market share in Europe by 5 percent in the past three years, from 20 to 25 percent.
Since the sales pie is common and shrinking to its lowest level in the last 19 years, this has naturally happened to the expense of its rivals.
The Wall Street Journal says one reason this is happening is that VW can afford to offer customers much more attractive financing than its rivals do. For example, in Italy you can buy the Up! city car with a 0 percent interest loan, while the interest rate for Fiat’s 500 is 6 percent.
VW plays the low interest loan card simply because it can: it has a cash pile of €9.2 billion (US$12 billion), strong sales in important overseas markets such as China and, being a blue-chip company, it can borrow money with the same rate as the German government, which is nearly a third cheaper than its rivals.
On average, German companies can borrow money at rates only 1.9 points above the reference-funding rate set by the European Central Bank. Italian and Spanish companies, on the other hand, have to pay 4.2 and 4.65 points above respectively.
So while the introduction of a common currency was supposed to dissolve barriers between countries of the Eurozone, it turns out that it has only highlighted the vast discrepancies that exist between their economies.
It’s an issue that has been brought up before, with Fiat CEO Sergio Marchionne last summer accusing VW of initiating a “bloodbath of pricing” and the German group calling for his resignation from the presidency of the ACEA, the European auto manufacturers’ association.
By Andrew Tsaousis
Story References: Wall Street Journal
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