Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

How Many European Carmakers: Will Survive?

Companies / Sector Analysis Sep 28, 2012 - 02:31 AM GMT

By: Andrew_McKillop

Companies

Best Financial Markets Analysis Article“It is unclear if all carmakers will survive without governmental help,” was the terse one-liner from the CEO, Hans Dieter Poetsch, of the VW-Porsche automaker group at the start of the Paris Motor Show.

For some European carmakers in an industry credited by carwatcher ACEA, the European Automobile Manufacturers Association with an annual turnover and revenues close to 500 billion euros in 2010, employing a total of around 12.5 million Europeans (direct and indirect), the end could come rather soon. For Dieter Poetsch and many analysts, carmakers in southern Europe producing small cars with low profit margins per car - and declining sales - will be the first to go. The bad news is that declining sales and an unremitting price war is causing industry wide and continent wide damage.


All three of Europe’s largest automakers - VW Porsche, Peugeot PSA and Renault - are confronted by falling sales and unit prices, made worse for Peugeot and Renault by their midrange and small car production strategy. Even luxury car producer Daimler has however been hit by intense downward pressure on prices in Europe. ACEA predicts that sales may reach a 17-year low this year and will not recover in 2013. Dealers in Germany, the region’s biggest economy, offered discounts on average of 12 percent off the sticker price in August 2012, the highest rate in more than a year, but this is dwarfed by huge discounts operating in other market segments and countries, according to car market analysts.

PRICE MELTDOWN AND DELOCALIZE OR DIE
According to Credit Suisse car analyst Erich Hauser reported by Bloomberg “The biggest problem for the industry is the complete meltdown of pricing discipline”.  Susan Docherty, head of General Motors' Chevrolet brand in Europe told reporters at the Paris Motor Show that with discounts and buyer incentives at current levels in response to industry contraction, “No one can make money”

Seemingly a bright spot suggesting light at the end of the tunnel for Peugeot, its CEO Philippe Varin said the French carmaker’s cash burn, reported by French media including Les Echos as "nearly 200 million euros per month", may end in 2014 and Peugeot can attain its drastic savings targets in 2015. This however supposes the automaker can continue its massive, ever increasing delocalisation. This strategy, now taking on the hues of a rout with the sole aim of getting out of Europe, after first getting out of France, extends from China and Malaysia, Morocco, Tunisia, Turkey and Egypt to Russia, India, Uruguay and Argentina - among other new or expanded production sites, worldwide. In all cases however, the Peugeot delocalisation strategy, like the same strategy of other European automakers was based on a double logic that no longer holds: sales in Europe would hold up, as would prices, and sales would expand rapidly in all non-European markets.

Neither of these has happened. Staying with Peugeot, its recent and current non-European carmaking capacity additions, by 2015, will attain at least 600 000 cars per year, according to the France based Transnationale industry watcher group. The strategy was focused not only on producing locally and selling into local markets, but also to raise car import supply for the French and European market. How long Peugeot can maintain this strategy is now an open question.

The comforting image of Germany's car industry being sheltered from downturn has also been trashed.
Daimler AG, the world’s third-largest luxury-vehicle maker, said September 20 that earnings at its car division will fall in 2012 as the steep market decline hurts second-half business, prompting the Stuttgart-based company to set its own efficiency programme in response. Underlining how fast things have changed, Daimler's CEO Dieter Zetsche, at the Paris Motor Show declined to outline details "because Daimler is still working out measures", and efficiency and sales growth should be seen as “two sides of the same coin,” he told journalists at the Paris show.

The sombre bottom line for Europe's automakers is also underlined by ACEA, which forecasts that car sales in the region this year will be at the lowest level since 1995. Car production which attained 15.9 million in 2010, according to ACEA, may fall below 13 million in 2013, in some scenarios by leading car market analysts, in a European car market where “No one can make money”.

"The car-pricing situation in the region is very tense and 2013 will probably be a challenging year as well", Christian Klingler, VW Porsche sales chief, said at the Paris Motor Show. He added that in his view the market cannot show any “fundamental improvement” until at least 2014. To be sure, European carmakers, like GM in the US, but also BYD of China are now counting on government subsidy.
Peugeot is cutting 8 000 jobs, shutting its factory in the Paris suburb of Aulnay, and shedding 25% of its labour force at its Rennes carmaking site. The measures prompted French industrial recovery minister Arnaud Montebourg in July to offer loans and tax breaks for French automotive manufacturers and incentives for drivers to buy high-priced hybrid and electric cars.

PERMANENT CONTRACTION?
Fiat CEO Sergio Marchionne, who currently heads ACEA, has urged his European counterparts to come up with a comprehensive plan to cut overcapacity throughout the region. Using data from ACEA and even in 2010, with sales still bolstered by massive subsidies operated by many EU27 governments for "climate conscious low CO2" car buying in 2008-2009, European sales trailed car production by about 1.25 million. The downsizing move proposed by Fiat's CEO is however resisted by VW Porsche and other German carmakers, who are not yet facing Italy-based Fiat's losing streak, with Fiat set to lose 700 million euros in Europe in 2012, leading to an immediate cut of its investment spending by 500 million euros, to limit the cash burn.

Industry analysts identify Fiat and Peugeot as having the worst balance sheets among major producers, but an increasing number of smaller carmakers, like Spain's SEAT and the Czech Republic's Skoda, both of them German controlled or affiliated, are in the same boat. Fiat has started shuttering its car plants, and Detroit-based GM, allied to Peugeot in Europe, is likely shutting a factory in Germany.

The always fuzzy-edged and hopeful idea that hybrids and electric cars could "take the strain" is above all taking its own severe taste of the real world. Leading Chinese hybrid and electric carmaker BYD’s Hong Kong-listed shares are in September 2012 down about 85 per cent from their 2009 peak, and the share price has tumbled more than 40 per cent in the last three months. The company warned in April that its first half net profit will fall by 75 to 95 per cent and the reason why, despite the sharp correction, BYD can still attract investor interest is nothing to do with Warren Buffet, who took a highly publicized interest in the carmaker: BYD expects the Chinese government to bail it out.

European carmaker share price movements will now move the same way, in lockstep with rumours of governments aid, subsidies and bailouts to preserve jobs.

The will of the wisp of "energy transition" driving car buyers to purchase $35 000 electric car sedans with a real world road mileage capability of 75 miles after an 8-hour charge, is now receding as fast as the "low CO2 climate crisis" sales theme used by carmakers, and by governments handing out $5000 in subsidies for the purchase of each car in Europe. The relentless trend for European automakers, and in other regions, is low cost cars for the mass market and ultra high-price luxury cars, for the tiny high end.

World carmaking overcapcity can be judged by ACEA figures suggesting that even in 2010 - now a highwater mark for global automakers - world carmaking capacity was at least 70 million, but total sales were around 59 million. In theory, with sufficient handouts from government and even a slice of Warren Buffet's speculative plays on a win some-lose some investing basis, global carmaking capacity could go on rising even if sales do not. For Europe however, the end of the road has already been reached. Downsizing of the industry has started, and in the short term, which will in fact stretch for years, car prices can only fall.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules