Car Earnings At Risk As Incentives Dry Out – US-FOREX.US
Don’t be fooled. Car sales in the U.K. rose for the first time since April 2008, thanks to the positive push given by scrapping incentives following similar initiatives elsewhere in Europe. But the impact is likely to be short-lived.Analysts at Credit Suisse said on Thursday they still preferred premium car markets, which haven’t been benefited by the government incentives. “Post a cash-rich second-quarter reporting season, and amidst booming scrapping demand, we struggle to see how auto sector sentiment can improve materially from here,” Credit Suisse
said in a note to investors. Scrapping schemes, or the European version of the U.S. “cash for clunkers” program, have been introduced continent-wide, slowing losses within the auto sector in France while boosting sales in Germany. Thanks to the boost, carmakers like German automaker Volkswagen
managed to post an actual profit with a hefty 12.3-billion-euro cash reserve, while France’s Renault
posted a loss but managed to generate positive free cash flow of 848 million euros . But that increase won’t last until 2010. “For mass makers we are cautious on 2010 earnings potential given risks to volume, but particularly price, as scrapping schemes expire. We reiterate our preference for premium makers, who should benefit from improving fleet demand and U.S. exposure in 2010,” Credit Suisse added.
Luxury car sales have seen an improvement in recent months and demand seems to be stabilizing without a looming threat of incentives drying out like in the mass sector.On Thursday, luxury carmaker Audi, a unit of Volkswagen, said its worldwide sales rose by 2.1% from a year ago, reinforcing the idea of a recovery in the premium sector. The Ingolstadt-based company, said the growth in July was strong in Europe and Asia, both key markets.Shares of Daimler
rose 0.7% while shares of BMW
fell 0.3% in Frankfurt on Thursday. Renault
rose 1.1%, and shares of PSA Peugeot Citroën
rose 2.0% in Paris.The European automotive industry is the leading manufacturing region in the world, with 34% of vehicles being manufactured here. Europe has a share of 7.6% in the manufacturing sector. The industry employs around 2 million people directly and 10 million through indirect employment, according to the European Commission.