Oil price shock threatens European car market

The European car industry has remained serene while coping with stagnating sales, and cleverly held on to respectable profits while undergoing serious restructuring. Even the threat of a credit crunch, and the real pain caused by the loss of lucrative sales in the U.S. by its German premium brands has been managed with a degree of aplomb.

But rocketing oil prices look like the last straw, potentially plunging the industry into a savage downturn not seen for perhaps 30 or 40 years.

"The West European car market is going to see an old fashioned downturn of the kind we have seen in mature markets previously in the 1960s and 1970s and that involves a 15 to 20 percent decline in demand, and distress for the car manufacturers," said Karel Williams, professor of accounting and political economy at Manchester University.

Even leading manufacturers, who can often be relied on to claim that everything in the garden is rosy while the rest of us can see that the rot has set in, are voicing apprehension.

"It is clear that the business in the mature North American and certain European markets could be dragged down to lows we haven't seen since the recessionary days of the early '80s," General Motors Europe president Carl-Peter Forster said.

"To put it bluntly, the rise in oil is having a profound and permanent impact on the fundamentals of our business — and not just in North America," Forster said on the GM web site.

"Adding insult to injury, while energy costs are draining the consumer side of our financial equation, the impact of skyrocketing commodity prices and the huge disparity between the euro and most other currencies are seriously dragging down the production side of things here in Europe," Forster said. Detroit News