Western Europe: Signs of a Shake-Up

WESTERN EUROPE

Charles de Gaulle’s government is squirming over a new affront to French pride — and this time the transgressor is a Frenchman, Pierre Bercot, the imperious head of Citroën, France’s second biggest automaker. Climaxing months of secret negotiations, Bercot revealed plans last week for a union of his ailing company with Fiat, the Italian automaker that ranks fourth in the world, behind only the U.S. Big Three. “It is not a question of Citroën’s troubles,” Bercot said, “but the problem of the entire European automobile industry.” That problem, as the French are keenly aware, is competition from U.S. automakers in Europe.

Much to the chagrin of the De Gaulle government, which was caught by surprise when Chrysler took over faltering Simca in 1963, a French solution for Citroën’s problem seems remote. Bercot insists that his company will “not fall under Fiat control”—”but what he has negotiated is not too far short of a Fiat takeover. According to the reported agreement, Fiat will buy a 30% interest in Citroën, presumably from the tiremaking Michelin family, which holds 56% of Citroën. Fiat would then reduce Citroën’s dangerous $100 million-plus debt, almost $56 million of which is owed to the French government. In turn, Citroën would give Fiat access to its French dealer network, and the two would share manufacturing facilities.

Piling Up Trouble. Citroën has long been heading toward a classic industrial disaster. Founded by a flamboyant Parisian named Andre Citroën in 1919, the company has been controlled for the past 30 years by the Michelins, who generally consider autos an adjunct to their profitable tire business. Citroën’s two basic models, the tinny, 20-year-old 2 CV and the 13-year-old, bullet-nose DS, were highly successful in the 1950s and early 1960s, when automanic Frenchmen would wait months for a car. That situation no longer exists, but Pierre Bercot, an able but conservative executive who became Citroën’s boss ten years ago, has not yet seen fit to modernize old models.

Citroën’s share of the French auto market has skidded to 21% since 1965, when it held a peak 31%. Profits have vanished, despite 1967 sales of 500,000 cars worth $896 million. Piling trouble upon trouble, Citroën last year bought Berliet trucks, which has earnings problems of its own, and began tooling up for a medium-size car, still three years off, in cooperation with Germany’s NSU. Early this year, having also started work on a fast, Maserati-powered touring car, Citroën went to the government for $60 million. Bercot was turned down flat, and then was hit by the workers’ strikes of May and June. Now, in talking about the proposed deal with Fiat, Bercot presents it as being “productive in bolstering Europe against American competition.”

Tightening Relationship. The U.S. has never loomed quite so large in the $13 billion European market. Through their European subsidiaries, General Motors, Ford and Chrysler now account for 29% of European car sales, up from 23% in 1962. Now they are increasing the Europeans’ troubles on the other side of the Atlantic as well. The small cars to be introduced in the U.S. by Ford next year and by G.M. in 1970 will doubtless dent the $2 billion market that imports, chiefly Volkswagen, have built up among American buyers. That will force much more competition in Europe, whose auto industry is in for a brutal shakeup. Fiat’s Chairman Giovanni Agnelli says that “very soon” there will be just seven major auto powers in Europe: the U.S. Big Three, plus “an English group, a German group, a French group and an international group constructed around Fiat.” The present situation:

∙FRANCE remains the second biggest market in Europe (after Germany), and state-owned Renault, which has 29% of it, is still in the lead. But third-ranked (after Citroën) Peugeot is fast increasing its share, now 19%. This month Peugeot is introducing its new 504, a handsome $2,670 car designed to do battle with cheaper Citroën DS models and Renault’s bulgy, year-old R-16. If the Citroën-Fiat deal goes through, Peugeot’s President Pierre Dreyfus expects a “tightening” of Peugeot’s relationship with Renault, which now includes cooperation in buying parts.

∙GERMANY has recovered from last year’s recession, and its biggest manufacturer, Volkswagen, hopes to surpass 1966’s record $2.5 billion sales and regain the European car-making lead it lost to Fiat last year. To build up European sales, VW continues to search for a successful brother to the 30-year-old beetle, which accounts for 70% of sales. This month it puts out its new 411, a medium-priced job (up to $2,381) that is VW’s first four-door sedan. Volkswagen continues to share research efforts with Daimler Benz, a likely future merger partner. Ford’s Taunus subsidiary is offering bigger and more expensive cars, yet remains in a deep sales slump. G.M.’s Opel has been highly successful and is enjoying strong exports to the U.S., where Opel’s new “GT” model will be sold next year.

∙BRITAIN is committing what British Ford General Manager William Batty calls “industrial suicide.” A rash of strikes has wiped out the competitive advantages of devaluation, holding auto exports to a meager 20% increase over last year, far from the hoped-for 35%. British Leyland Motors, formed by last year’s merger of Leyland trucks and B.M.C. (Austin Healey, Jaguar, MG, Morris) began 1968 with no new models and several old ones that did not meet U.S. safety standards. Now British Motors is getting in gear. This month Jaguar is introducing its racy-looking XJG, a $5,760 luxury model designed to rev up exports.

∙ITALY is almost overrun with cars, but that has not stopped Fiat from selling more autos in Europe than anyone else ($1,300,000 last year). This year it stands to increase its share of the European market from 20% to 25% if Citroën comes into the fold. At home, sales have fallen off under competition from imports and from government-owned Alfa-Romeo. But Agnelli, Fiat’s ardent pan-European, is more than making up for the decline with increased exports. Taking a tip from Detroit, he is bringing out several new models, including the fast-selling 124 coupe; yet he still insists that Europeans will never gofor the “policy of waste” of annual changeovers. He will soon be able to test his theory in action. Fiat, which is fast becoming the first “interterritorial company,” as Agnelli calls it, may be the first to face the Americans in strength all over Europe.