European carmakers go big on high-riding minis

By Laurence Frost

PARIS (Reuters) - In the gloom of Europe's bottomless auto slump shines a relative bright spot, the mini-SUV - and beleaguered mass-market carmakers are piling in like excited joyriders.

PSA Peugeot Citroen , Ford and Renault joined the stampede on Tuesday, showing new subcompact crossovers at the Geneva car show, with Fiat and others close on their heels.

Despite austerity and unemployment weighing heavily on sentiment and car registrations in freefall - now approaching a 20-year low - city dwellers are queuing to pay a 3,000 euro premium for a slightly higher-riding runaround.

"It's not very rational," said Francois Bancon, the Nissan <7201.T> upstream development chief behind the best-selling Juke. "But we're not complaining."

 

The Japanese automaker, which unleashed the Juke's muscle-bound physique upon the world in 2010 and logged more than 97,000 European sales in each of the next two years, is soon to be upstaged by French parent Renault.

The curvaceous Captur, a Renault Clio hatchback with more body, and Peugeot's more obviously named 208 derivative, the 2008, will bump the Juke down to No.3 in the category next year, according to forecasting house IHS Automotive.

Overall, cash-strapped Europeans will snap up nearly 290,000 mini-SUVs this year, IHS Automotive's projections suggest. That's a gravity-defying 88 percent advance on last year's total and triple the number sold in 2009, the year before the Juke's arrival.

Volkswagen and South Korea's Hyundai <005380.KS>, which clawed European business from mass-market rivals last year, have been caught off guard and are two years behind with their own offerings.

NET WIN

All of this is welcome news for Peugeot, Renault, Ford, Fiat and General Motors' Opel brand as they struggle to halt regional losses and declining market shares.

"They can underpin these vehicles with the same architectures they have in the hatches and charge a damn sight more, just because customers want something a bit different," IHS senior analyst Ian Fletcher said.

The surge comes at the expense of other small-car versions, with traditional hatchback sales in 2013 expected to drop by a third from their 2009 level, but the price mark-up makes it a clear net win.

While the 2008's production costs are close to those of the 208 it is based on, Peugeot's crossover SUV starts at about 15,000 euros, compared with 12,000 for the hatchback.

The Ford Ecosport and Fiat 500X are both due later in 2013, as the Italian car maker's chief executive, Sergio Marchionne, bets on variants of the retro-styled 500 model to make up for drooping sales of the ageing Punto hatchback.

Besides the Juke, the new models join Opel's Mokka, launched in Europe last year and designed from the same GM platform as the Chevrolet Trax, also about to go on sale.

London-based UBS analyst Philippe Houchois says that car-buying customers gain clear benefits for their extra outlay.

"People the world over seem to like a higher driving position," he said.

The front-wheel-drive powertrains that the new vehicles share with ordinary minis enable them to combine 4x4 roominess with small-engine fuel efficiency, he added.

LATECOMERS

For carmakers, the demand shift between vehicle types delivers "more of a boost for pricing and mix than market share", Houchois added.

Nonetheless, the stragglers are keenly aware that they stand to lose business.

"We may be a bit late," a senior VW executive conceded. "We've been attacking SUVs from the upper end, but the compact and subcompact segments have great potential."

Hyundai and Honda <7267.T> are expected to introduce subcompact crossovers in 2015, the year VW launches the Taigun, a smaller version (and anagram) of its Tiguan SUV. A Toyota <7203.T> competitor is slated for the following year.

"We've been asking to launch as soon as possible," Honda Europe President Manabu Nishimae told Reuters, adding that his Tokyo bosses wanted the United States and Japan to get the vehicle first.

Peugeot does not seem overly concerned about the arrival of new rivals to the timely 2008.

"The fewer competitors there are the better, obviously," said Peugeot brands chief Frederic Saint-Geours.

"This market segment will begin to have more and more competitors, but we're convinced it will continue to grow."

The forecasters agree, predicting a steady expansion to a peak of almost 550,000 vehicles in 2016, with little risk of the cut-throat price competition that has savaged carmakers' margins in the rest of the market.

"The earliest entries will obviously have the best stab at it," IHS's Fletcher said. "But in 2013 I don't think anyone moving into that segment will have many worries."

(Additional reporting by Gilles Guillaume, Andreas Cremer, Henry Foy and Christiaan Hetzner; Editing by David Goodman)