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Europe drags down global car-makers

Euro loser: Ford’s European division is expected sustain a big financial loss by the end of this year, resulting in a lower global profit than in 2011.

Global car industry sales and profitability suffer amid European economic crisis

General News logo27 Jul 2012

EUROPE’S sovereign debt crisis is hurting sales and profitability in the global automotive industry, with Ford expecting a $US1 billion ($A962 million) loss in the region this year, Volkswagen Group reporting slowing profit growth in the second quarter and Hyundai reportedly slashing its full-year sales forecast.

Mercedes-Benz parent company Daimler reported a decline in second-quarter profits despite increased global volumes, attributing the drop to its investment in expanding the range of compact models.

Official results from General Motors have not yet been published, but announced in May that losses at its European arm sapped $US256 million from its bottom line in the first quarter.

Naturally, European manufacturers with a heavy reliance on their home market such as PSA Peugeot Citroen, Opel, Renault and Fiat and are hardest hit, with the former two planning factory closures and the latter two suffering double-digit sales volume declines in the first half.

However, it is not all bad news as Toyota’s rapid recovery from last year’s natural disasters looks set to return it to the ranking of the world’s largest car-maker after briefly losing the title to GM.

Bloomberg reports that Toyota sold 4.97 units in the first half of this year against General Motors’ 4.67 million and Volkswagen Group’s 4.60 million.

80 center imageFrom top: Ford's Bob Shanks VW Group's Martin Winterkorn Daimler's Dieter Zetsche.

Ford’s global pre-tax operating profit for the first half of this year was $US4.12 billion, down $US1.6b compared with last year, with $US1.02b of the drop coming from its European operation, which went from a $US469 million profit a year ago to a loss of $US553m as sales plummeted 14.4 per cent to 731,000 units.

Ford says a “strong” full-year profit is still expected, but is forecasting a lower result than the $US8.8b achieved in 2011, which represented a 13-year high for the company.

The Blue Oval said the results “largely reflected unfavourable market factors”, with the drop in volume attributed to a shrinking market (and Ford’s share of that market) that led to “production adjustments to maintain dealer stocks at appropriate levels”.

It also reduced prices, with a knock-on effect on profitability, as it “responded to excess capacity with higher incentives”.

Ford described the European market as subject to a “deteriorating external environment” and the challenges faced there as “more structural than cyclical”.

It says it has been badly affected due to its strong presence in the region – but claims it knows what to do so it can return to profitability.

Ford executive vice-president and chief financial officer Bob Shanks said the company has “faced challenging situations in other parts of the business before, and successfully addressed them through our One Ford plan”.

“We will continue to use our plan as the guide to address challenges and opportunities in our valued European operations,” he said.

Ambitious VW Group, which has sights on becoming the world’s biggest car-maker by 2018, reported an operating profit increase of 6.7 per cent to €6.49 billion ($A7.67b) in the first half, with a 3.4 per cent rise in the second quarter compared with 10.2 per cent in Q1, and is targeting its full-year operating profit to be lineball with 2011.

VW’s financial result would have been worse were it not for the highly profitable Audi luxury brand, for which profits rocketed 13.2 per cent to €2.9b from 678,000 vehicle sales, compared with VW Passenger Cars, which made €2.2b (up 3.8 per cent) from 2.4 million vehicle sales.

Sales of VW Group vehicles in Western Europe were “significantly down” in the first half compared with the same period last year and the company identified a reluctance of private customers to purchase new cars in its domestic German market.

However, VW AG chairman Martin Winterkorn said the company “can be satisfied with our performance in the first six months” and was optimistic that VW’s strong position internationally “will enable us to outperform the market as a whole despite the challenging environment”.

Global sales for South Korean giant Hyundai are up 11.5 per cent to 2.18 million units (not including Kia) to the end of June but Bloomberg reports company CFO Lee Won Hee as saying it has revised its full-year forecast down by half a million units.

Mr Hee said demand for cars in Europe will drop from 7.65 million units in the first half of this year to 6.43 million in the second half.

Bloomberg reports the total European market contracted by 3.2 per cent in the first half and speculates that registration limits imposed in China’s major cities could also have an impact.

Daimler, like VW Group, is expecting full-year profits to match 2011 levels, but chairman Dieter Zetsche said the company “remains vigilant in our monitoring of general economic developments and the volatile markets”.

Daimler sales in the second quarter increased 8.0 per cent to 570,300 units, driving revenue growth of 10 per cent to €28.9 billion, but profits dropped 11.1 per cent to €1.52 million.

Dr Zetsche attributed the shortfall to “high expenses as previously announced for new products and technologies”.

“Our company was once again very profitable in the second quarter,” he said. “We achieved strong growth in unit sales and revenue.”

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