Europe's Carmakers Brace for Slide

EUROPEAN automakers find themselves in a deep slump similar to what American car companies went through a decade ago.

Sales are plummeting. International competition is heating up. Japanese manufacturers are setting up shop in Europe to get around import restrictions. These factors have put the continent's automakers in a funk.

"Since World War II, this is one of the biggest crises in the auto industry in terms of market decline," says Renault Vice President Georges Cagnard. According to his figures, analysts are calling for an average fall of 17.4 percent in Western European car sales this year.

It will be difficult for Renault and most of its European competitors to turn a profit this year. Unlike previous recessions, the slump has hit luxury-car producers too.

"As far as anybody can remember, we have not had a world economic crisis such as we are experiencing since the '30s," says Josef Gorgels, director in charge of European marketing for Mercedes-Benz AG. "We will have a difficult time in '93 and most likely in '94."

THERE are a few bright spots. The British market is on the mend. (It is the only such case in Western Europe.)

Analysts and automakers agree that European quality is far better vis-a-vis the Japanese than United States quality was 10 years ago. And the Japanese car companies look less forbidding than they did in the 1980s.

"The time when the Japanese could come with rock-bottom prices ... when they could do things like a Toyota Lexus, paid out of their vest pocket, is gone," Mr. Gorgels says. "Japan has to compete at a normal level" now.

Still, the competition is heating up.

At a time when car sales are dropping, Japan is looking to increase its market share. Import restrictions currently hold the Japanese to 11 percent of the European market. The European Community will gradually liberalize the restrictions until 1999, when they are to be lifted completely.

Meanwhile, five of the six big Japanese automakers have plants in Europe (mostly in Britain). And the sixth - Mazda - is looking for a European partner to do the same. These transplants currently can turn out 400,000 cars a year - a figure that should triple by the year 2000, according to Hypo-Bank in Munich.

Many European car makers admit that they cannot yet compete head to head with the Japanese.

"The advantage they have is industrial; it's not an advantage in the product," Mr. Cagnard says. "We will never be able to replicate the number of hours worked, the cost of labor.... Our response to that is to be more creative."

And it involves cutting costs. Virtually all of Europe's car makers are trimming staff and restructuring operations.

The Renault Group has slimmed its work force by one quarter since 1986.

Volkswagen has announced plans to cut 36,000 employees. Last year, Mercedes cut its domestic staff by 14,700 - an 8-percent reduction.

Mercedes has also managed to cut production costs of its new C-class car, which has allowed the company to price it at the same level as the 190-series it replaced. But to be competitive, the company will have to work the same magic with its upcoming E-class and S-class cars, says Klaus-Jurgen Melzner, auto analyst with Deutsche Bank Research.

Of the European car makers, only Peugeot and BMW have really cut costs to the point that they are competitive, Mr. Melzner adds. "The others are really lagging behind."

Although the current sales slump is dramatic, it comes on the heels of some boom years in the late 1980s.

"In Germany, we have today what we would have called normal in the mid-1980s," says Henrich Heitmann, European director for BMW.

BY introducing new models and clever marketing after a 20-percent decline in US unit sales in the late 1980s, the company says it can maintain current production even if the world economy does not improve through 1995.

One reason for BMW's strong showing is that it did not greatly expand capacity during the German boom years of the late 1980s and early '90s.

"It is very pleasant to stand in shoes that are a little bit too big," Mr. Heitmann says. "But when you start running, you fall on your nose."

The crash-landings of other automakers can already be heard across the continent.