German car revival in top gear: Turnround stronger than expected as US sales help to lift beleaguered sector

GERMANY's motor industry has gone from gloom to zoom.

The country's car makers have presented a picture of dramatically improved fortunes over the past week. Instead of plunging sales and production the talk now in the industry, which accounts for every sixth job in the country, is of orders outstripping capacity and a surge in earnings.

'People had expected a turnaround but it is stronger than the best of expectations,' said Glen Liddy, an analyst with Kleinwort Benson. 'We are positive on the industry. It will go from strength to strength.'

German car production plummeted by 25 per cent in 1993. Companies such as Volkswagen and Mercedes, caught out with inefficient production processes and massive cost disadvantages, plunged to record losses.

David Herman, chief executive of Opel, the European subsidiary of General Motors, described 1993 as 'the worst year in decades for the industry'.

Overall, German car production grew by 6 per cent in the first half of 1994 and most manufacturers expect to bounce back into profit. Mercedes-Benz is predicting a 15 per cent increase in new car deliveries this year to 585,000, removing the stigma of being for the first time outsold and outproduced in 1993 by its arch-rival BMW.

Helmut Werner, chief executive of Mercedes, said he expected a 'considerably improved result' in 1994 and analysts forecast that the car subsidiary will account for nearly all of the group earnings by the parent Daimler-Benz, estimated between DM500m ( pounds 207.5m) and DM1bn ( pounds 415m).

Despite being overtaken BMW is hardly complaining, posting a 14 per cent surge in net profits to DM290m in the first half. Orders were outstripping capacity, the company said.

Volkswagen, Europe's biggest manufacturer, said worldwide group sales increased by 8 per cent in the first half. It is predicting a return to profit after losing almost DM2bn in 1993.

The strong American market has done much to lift the spirits of the German manufacturers. Mercedes, with a first-half increase in sales of 28 per cent, spoke of volumes nearing the good years of the 1980s. BMW's first half sales in the US grew by 13 per cent.

Both luxury makers have gained ground at the expense of the Japanese. Porsche, boosted by the success of its 911 Carrera, expects to sell 5,000 new cars this year in the US compared with 1,200 in the 1993. Volkswagen's group sales more than doubled to 57,000.

Underpinning the improved sales thanks to the recovering world market are the benefits from the cost-cutting offensive unleashed by the recession.

While the gloom has lifted, optimism remains muted. The key domestic market remains weak, costs are still too high and there is doubt as to whether the surge in the first half of this year can be sustained.

(Photograph omitted)