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Car Makers Report Strong Financials, But Is This The Peak?

Car Makers Report Strong Financials, But Is This The Peak?

“Most have made up their minds that earnings have peaked – or at least are near peak – and the future of the industry looks daunting,”

Sales and profit prospects for Western Europe are causing concern, just as manufacturers scramble to report surprisingly strong first quarter earnings and sales.

Despite strong financial statements across the board, investors are worried that this might be a peak for the industry. This comes despite Western European sales rising 7.4 per cent in the first three months of the year. LMC Automotive warns this will slow to 2.7 per cent for the year as a whole as the recovery from the 20 year low in 2013 loses momentum.

European Union sales hit 14.6 million in 2016, the highest number in almost 10 years but still about 6 per cent below the pre-crisis high in 2007, according to the Wall Street Journal.

Investors see current numbers as a possible peak for earnings, despite many claims by the manufacturers about strong growth for the year as a whole. They worry about huge claims on investment budgets because of the race to market electric and autonomous vehicles, while the diesel scandal might weaken a key contender in the race to meet ever-tightening fuel consumption regulations.

Enthusiasm low
“It’s apparent that investor enthusiasm for the sector is very low,” said Bernstein Research analyst Max Warburton.

“Most have made up their minds that earnings have peaked – or at least are near peak – and the future of the industry looks daunting,” Warburton said.

Citi Research agrees, reviving an old market cliché about selling in May and going away.

“It’s been a rush, but now we may hit a flat spot. We’re advocates of the efficient market hypothesis and not fans of clichés, but it seems there is some merit to the adage “Sell in May and go away,” said Citi Research analyst Michael Tyndall.

“In 20 of the last 30 years the adage held true. 2017 looks to be off to a great start for the European auto companies in terms of operating performance, but we suspect stocks will stall on limited information flow in the next two months and nagging doubts around peak auto, powertrain evolution and rising R&D,” Tyndall said.

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