'Purchase an automobile, get one free' discounting threatens European car recoil

PARIS (Reuters) --
Europe's decline in auto sales is displaying signs of bottoming out but significant price competition among brands and dealers threatens to kill any sense of relief for automakers struggling with excessive plant capacity.

When he stopped by his local Hyundai showroom retired contractor Elie Chauvin didn't intend to purchase a fresh car, but he came away with two vehicles for the cost of 1.

The offer to purchase an ix35 crossover and obtain an i10 minicar thrown in for 1 euro ($1.31) is additional evidence that Europe is really a car buyer's paradise plus a manufacturer's nightmare.

"It was the offer which I discovered," said Chauvin, 63, of Nimes, France. "I would not have changed my car otherwise. Maybe not yet."

Heavy discounting is convincing a number of other consumers besides Chauvin to bring forward buys they might otherwise have made after.

Confidential researching the market seen by Reuters reveals that reductions by massmarket auto brands jumped 17 percent from the year before to a typical 2,518 euros per vehicle in Might across Europe's five largest markets.

Cash-burning automakers will need to lower their reductions sooner or later, activating yet another sales decline "within the the next couple of months," said Anil Valsan, lead analyst at Ernst & Young's international automotive practice.

"As long as we now have incentives only at that level, any bottoming out is going to be man-made," he explained. "If carmakers do not begin pulling back shortly, the correction might be even sharper."

Generous discounts
at the namesake brand and 21 percent to 3,429 euros at Citroen, based on data from a leading independent researching the market house spanning Germany, UK, France, Italy and Spain.

General Motors Co.'s European reductions are amongst the most generous, based on the findings. Ford incentives increased an even more modest 4 percent to 2,632 euros, while Renault's dropped 1 percent to 2,291 euros. Both organizations have vowed to reinforce pricing even should they lose market share.

Out of concern for brand image, many carmakers conceal their cost-slashing by registering some of their particular vehicles to market as used, or by off-loading them all to rental firms at the conclusion of the month with a significant markdown.

The others, like Hyundai, are coming up with more and more creative reductions they're able to brazenly advertise to catch a larger share of Europe's shrinking market from weaker competitors.

A lot of Hyundai's recent Spanish clients will probably be getting 2,250 euros straight back, after it pledged last month to refund one auto loan payment as high as 150 euros for each one of the first 15 goals scored by the national football side within the Confederation Cup.

Toyota countered with as much as 5, 000 euros of additional gear - such as parking cameras, alloy wheels and refrigerated glove boxes - all for just one euro. Its Queen Car dealership in Milano, Italy, has already been giving out holidays.

Just about all automakers bleeding profit Europe, except its German luxury and Volkswagen peers.

Optimism is growing that auto sales volumes might be nearing the conclusion of these long fall.

Ford is improving Spanish production of its Kuga SUV by ten percent, while workers have been asked by Volkswagen to assemble more Golf hatchbacks and cut short their summer breaks.

Consulting firm LMC Automotive said June registrations dropped 6.1% in western Europe however the seasonally adjusted rate increased from an annualized 11.55 million in-may to 11.7 million "comfortably the greatest result to date this season."

Heavy discounting is terrible news for those carmakers, but great news for those Chauvins.

"My wife was pleased; she said she had love just a little car," he explained. "When I attempt to tell other folks I got both vehicles for that cost, they merely laugh at me."

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