FRANKFURT Europe's battered auto market may be turning a corner, just as industry leaders converge on the biennial Frankfurt motor show.
But while the relief is palpable for PSA Peugeot Citroen, Fiat and Renault - cheered by a share price rally as sales begin to stabilize - a tour of the show stands opening on Tuesday may prove more sobering for the French and Italians.
Team Germany, led by Volkswagen (VW) has stayed in the black and kept up investment throughout the six-year slump, positioning itself to pull further ahead of so-called "Club Med" rivals in the next cycle.
"The German stands will be where most of the action is," said Jonathon Poskitt, head of forecasting at research house LMC Automotive.
"This product proliferation is a significant reason why the German manufacturers are going from strength to strength - and why the pressure remains on the likes of PSA, Renault and Fiat."
Since 2009, outlays on capital expenditure, research and development (R&D) have fallen as a percentage of revenues at Fiat, Renault and Peugeot, and risen at VW (VOWG_p.DE), BMW and Daimler, according to UBS data shared with Reuters.
By the end of 2013, VW will have spent 39 billion euros ($51 billion) on R&D over five years, compared with 26 billion by Daimler, 17 billion by BMW, 10 billion by Peugeot, 9.2 billion by Renault and 8.2 billion by Fiat.
The full extent of the R&D gap may take 3-4 years to be felt by consumers - the typical development time for a new car. But early signs will be in evidence across the sprawling Frankfurt Messe exhibition complex.
VW brands are rolling out a dozen new vehicles or variants, including electric versions of the Golf compact and Up mini.
Daimler (DAIGn.DE) will unveil several cars including the Mercedes GLA compact SUV, its second vehicle built on a new modular architecture that yields a greater diversity of models built from common parts.
Like Volkswagen's MQB - used in a new Golf and Audi A3 - the Daimler MFA platform brings versatility and savings that should help the luxury carmaker grab business from mid-market rivals in the smaller categories they used to dominate.
In a further challenge to Renault (RENA.PA), an early investor in electric cars, BMW (BMWG.DE) will show its sporty new plug-in i8 alongside its smaller i3 sibling, plus an updated X5 crossover and a new 4 Series coupé.
"What's impressive about the Germans is the way they're launching new vehicles in absolutely every market niche," said Georgeric Legros, a management consultant with AlixPartners.
German premium carmakers are "virtually becoming generalists", Legros said. "You can't fail to notice the sheer number of different BMW vehicles out there."
FIAT FALLS BEHIND
The southern carmakers most exposed to collapsed Mediterranean markets - with Italy and Spain still 50 percent below pre-crisis levels - have much less to show for themselves.
Largely absent or marginal in China and the United States, where the Germans have made huge profits, their investment in new models and architectures has fallen further behind.
No major unveilings are expected from Fiat FIA.MI besides another variant of its ageing 500 model. The Alfa Romeo brand, key to CEO Sergio Marchionne's troubled recovery plan, will roll out facelifts of its Giulietta compact and MiTo mini.
France's Renault, like Ford (F.N), will display a concept car prefiguring a push upmarket to do battle with the encroaching Germans, but little else.
Peugeot (PEUP.PA), which lost 5 billion euros last year but clung to life with a share issue and French bailout, has managed to revamp key models including the 308 compact and Citroen C4 Picasso minivan on show in Frankfurt.
But it has halted plug-in hybrids, dual-clutch gearboxes and pneumatic "Hybrid Air" powertrains developed with Robert Bosch until it can persuade alliance partner General Motors (GM.N) or another carmaker to share costs.
"Considering where they were, Peugeot has done well to maintain momentum," said IHS Automotive analyst Ian Fletcher.
"It's Fiat that has held back the most on investment - and they will be in the worst difficulty when the upswing comes."
In 2007, the last European demand peak, the three German carmakers claimed 30 percent of the market in total, neatly matching Peugeot, Renault and Fiat's combined share.
But by 2012, VW, BMW and Daimler were ahead by 36 percent to 27. Their lead will grow further, IHS predicts, with the non-Germans also challenged by the likes of Hyundai (005380.KS).
In recent months, barring a slow August, annualised European car sales have been picking up from a 20-year low and may gain more impetus after September 22 German elections, analysts say.
Shares in the worst crisis casualties are rising in anticipation - Peugeot stock has more than doubled so far this year, with Fiat up 53 percent and Renault 39 percent.
By contrast, VW is little changed and BMW up just 5.5 percent, a minor embarrassment to analysts who backed the Germans and missed the bounce.
Both rebound and discomfiture may prove shortlived. Moody's predicts just 3 percent European market growth next year and warns the upturn may stop short of a recovery.
"We don't expect the increase in 2014 to be an indicator of a sustainable upward trend," the credit ratings agency's chief auto analyst Falk Frey said in a September 3 media briefing.
Among carmakers that have slashed costs to survive, "short-term gains are likely to be at the expense of longer-term prospects", Barclays advised clients in a recent note.
Excluding the powerhouse Audi division, VW's R&D spending per vehicle outstripped the French carmakers by a 28 percent margin in 2007, rising to 43 percent last year, the bank estimates.
"The longer-term story is that the Germans are spending more than they ever have in their history," said Barclays analyst Michael Tyndall, who remains "underweight" on Peugeot and Fiat shares while recommending VW and BMW.
"The future arguably just gets brighter and brighter for those who spend money - and bleaker and bleaker for those who don't."