Sept 10 - Europe's car market is bottoming out after five years of falling demand, but high unemployment and weak bank lending suggest its recovery will be long and slow, say executives at the Frankfurt car show. Julian Satterthwaite reports from the show and asks if they are right?
Peugeot Citroen has become a symbol of the problems for Europe's car industry. Falling sales and thin margins have meant big losses for years. But there's something strange in the air here at the Frankfurt car show - a faint sense of optimism. No one thinks a recovery will be quick or strong, but there's a growing consensus that the European car market is at least stabilising. Citroen CEO's Frederic Banzet. (SOUNDBITE) (English): CITROEN CEO FREDERIC BANZET, SAYING (ENGLISH): "Markets are very uncertain, but I believe that we will do better in the second half of the year than we did in the first half, and better than during the second half of 2012. Evidence is mixed. European car sales rose early in the summer, before tumbling again in August. The overall market is still down on last year. But Moody's predicts a three percent rise in European car sales next year. Some mass-market names, including Renault, even managed to post gains in August thanks to well-received new models. JULIAN PTC, SAYING Whatever happens to the broader market though, there's another problem for French and Italian manufacturers - how do you keep up with the Germans? Over the past five years, VW group has spent around forty billion euros on research and development. That's about four times what Renault spent. And that could spell trouble for VW's rivals. The German giant is launching dozens of models at this year's show, if you include group brands such as Skoda, Seat and Porsche. Citroen, by contrast, has halted development of plug-in hybrids until it can persuade partner General Motors to share the costs. Ernst & Young's Mike Hanley says the German firms also benefit from targeting more affluent customers: (SOUNDBITE) (English): ERNST & YOUNG AUTO ANALYST MIKE HANLEY, SAYING: "You have the luxury and premium brands, which always attract a consumer that's more resilient to economic downturns, who can afford to buy, they aren't affected as much by the economic downturn." Jaguar Land Rover is also bucking the trend. It's spending 1.7 billion euros and has plans for a new small model which will create 1,700 jobs in the UK. It's more evidence of the uneven recovery which car show hosts Germany looks set to benefit from the most.