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European Auto Financial Results For 2008 Will Shock

Only VW Will Be In The Black, Thanks To A Little Trickery.
Renault In Trouble As Megane, Laguna Flop.

If you thought you were ready for the worst because of the horrendous sales performance of Europe’s car manufacturers in the 4th quarter of 2008, even you are about to be shocked, according to Bernstein Research of London.

Peugeot-Citroen and Renault of France, BMW and Mercedes of Germany and the U.S., Japanese and Koreans in Europe all look set for huge fourth quarter European losses. Only VW, Europe’s market leader, will stay in the black, and that only because of some questionable tactics which may come back and haunt the company in the current quarter.

“We expect 4th quarter results – and debt levels – to shock despite already low expectations… (the) 4th quarter will highlight how quickly balance sheets are deteriorating and how close capital raising actions may be,” said Bernstein analyst Max Warburton in a report called “Quantifying the Q4 impacts of collapsing sales, mix and pricing – It’s even worse than you thought”.

“We estimate Mercedes losses will be worse than BMW’s in Q4 and Renault’s losses higher than Peugeot-Citroen’s. We expect further large residual write-downs at BMW and Mercedes and probably inventory write-downs across the sector,” Warburton said.

Only VW has been performing well. While Europe’s sales plunged 19 per cent in the 4th quarter, VW’s sales fell only 10 per cent, ramping up its market share to a record 22.5 per cent. This is not all positive.

“We attribute most of the (VW) good news to volume “push” and pre-registration – our industry sources tell us dealers are heaving with inventory. Management have also recently admitted over-building cars at the factory level – expect large inventory accumulation in the Q4 balance sheet and payback from production cuts in Q1 2009,” he said.

The Koreans and Japanese are also in retreat, with Toyota sales off 35 per cent and Hyundai’s down 24 per cent.

Renault is in the biggest trouble, according to Warburton, with sales of its new medium sized family car the Megane, (competes with the VW Golf-Rabbit) in trouble, and the big Laguna (competes with the VW Passat), almost dead in the water.

“Renault is in structural decline in Europe with its new model cycle failing. We believe Renault’s sales across Europe suggest 1) a low impact Megane product launch 2) collapsing Clio (competes with VW’s Polo) demand 3) near-zero demand for Laguna. Renault needs to go back to the drawing board, quite literally,” Warburton said.

Renault and Peugeot-Citroen announce 2008 results next week, Mercedes the week after. VW unveils its figures on March 12, and BMW March 18.


Neil Winton – February 3, 2009 

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