Car sales are related to economic growth and consumer confidence, says Citi. But wait! The bank’s analysts, Philip Watkins makes the journey to that humdrum conclusion interesting — with a detour through the banks, psuedo-banks, and financing operations of the European car companies.
Even if sales are tied more to GDP than to interest rates — seven in every ten new cars are sold on credit these days. Plus, the financial companies hiding within the automakers have around €400bn of assets and produce a sixth of of pre-tax profits (click chart to enlarge). Read more
General Motors has set itself the aim of increasing its profit margin to 10 per cent, eyeing net income of $10bn a year, the WSJ reports. Three years after its federal bailout, the automaker is expected to unveil earnings of $8bn in 2011, suggesting that its ambition is within striking distance. GM’s current profit margin is six per cent. But while its restructuring has helped GM to become leaner and debt-free, analysts are sceptical it can meet the new target amid a slowdown in Europe and growing competition within the industry.
Europe’s carmakers are crying foul over a proposed trade agreement between the European Union and India, which they say would restrict access to one of their most important but highly protected markets, says the FT. The industry, led by Germany’s powerful VDA carmakers’ association, says the agreement as discussed would grant Indian-built cars immediate duty-free access to the EU but would only reduce the tariff barrier to European vehicle exports to a level of 30 per cent, which would stay intact indefinitely. “The results which are on the table are not deserving of the name ‘free trade’ because it’s not a real free-trade deal,” said Matthias Wissmann, VDA president. “The Indian side wants to keep a 30 per cent tariff on passenger cars and gives only vague promises that it will negotiate with the EU again in 2017.” The intervention by one of Europe’s biggest industries adds to a host of barriers to an agreement, where the two sides are still at odds on a range of topics, including visas, the Indian commercial sector and the opposition of some Indian states.
Bloomberg reports that US car manufacturers had their best year since 2008 with 12.8m vehicle sales, beating analyst predictions. General Motors also succeeded in taking back the top spot from Toyota Motor Corp. Ford, Chrysler, and General Motors now control 47.1 per cent of their domestic market, up from 45.2 per cent in 2010, according to Autodata. The US music industry also saw increased sales in 2011, up 6.9 per cent compared to the previous year. The uptick, boosted by digital downloads, saw the first increase in album purchases since 2004, reports Bloomberg.
China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday.
US auto sales rose 14 per cent in November over the same eriod last year, as lower petrol prices and a wider availability of Japanese models helped the industry achieve its highest selling rate in more than two years, the NYT reports. Chrysler said sales across all brands were 45 per cent higher than November 2010, while Ford’s sales were 13 per cent higher but gains in SUVs and trucks offset a decline in demand for the company’s cars. GM’s sales rose 7 per cent with its smaller cars and pickup trucks recording big gains. Some Asian auto makers also benefited from higher demand in the US, reports Bloomberg, with Toyota, Nissan, Hyundai and Kia selling more vehicles than analysts had expected. However Honda failed to see an upturn, as the company says its US sales are still suffering the effect of the March disasters in Japan. Analysts in both reports indicated the surge was the temporary effect of Americans having long delayed new vehicle purchases.
Volkswagen will become the world’s biggest carmaker this year – a full seven years earlier than its management’s aim to replace Toyota in the industry’s top spot, according to three leading consultancies. The FT reports forecasts show that VW’s relentless growth around the world, coupled with Toyota’s supply-chain problems after this year’s earthquake in Japan, mean the German automaker will claim the number one spot for both sales and production. The result, if borne out by year-end tallies, would mark an upset in an intensely competitive industry where Toyota and General Motors have for the past several years vied for the title of biggest. However data released on Monday showed Japan’s exports rose more than expected in September, says Bloomberg, increasing 2.4 per cent from a year earlier as demand for cars and auto parts rose. Exports have rebounded as companies including Toyota restored production after the March 11 earthquake and tsunami damaged factories and caused parts and power shortages.
Ford plans to invest $1bn to build a factory in western India in a drive to gain a greater share of one of the fastest-growing car markets, the FT reports. The factory in Gujarat, which should be in production by 2014 employing 5,000 people, is expected to have an initial annual capacity of 240,000 vehicles, said Joe Hinrichs, head of Asia-Pacific and Africa. It is the company’s biggest investment in India to date and will more than double the capacity of Ford’s existing facility in the southern state of Tamil Nadu. Ford’s India-built Figo model helped the group nearly triple its sales there last year. But the company lags other big auto makers in the fast-growing markets in Asia and Africa, says the NYT.
Jaguar Land Rover is to boost its spending on products by 50 per cent from about £1bn ($1.6bn) to £1.5bn as the UK’s largest premium carmaker prepares to launch the most important vehicle since Tata Motors bought the group from Ford Motor three years ago. The FT says production of the Range Rover Evoque, the first all-new vehicle developed since the $2.3bn (€1.6bn) acquisition and the smallest yet to be produced by a marque known for big off-roaders, will start on Merseyside in the UK on July 4.
The Wall Street Journal reports that two months after the March 11 earthquake rocked Japan, the ripple effects are starting to hit US car dealers like AutoNation. Dealers had begun the year expecting a surge in auto sales. But due to the quake’s effect on Japanese auto makers, many dealers are now in bind: They’re running short of Japanese-brand cars as demand is rising. “We are in a completely different environment than at the beginning of the year, and we have to pivot on a dime,” AutoNation Chief Executive Michael J. Jackson said at a meeting last week according to the Journal. Other auto dealers are also coming to grips with the same reality. Houston-based Group 1 Automotive Inc. is getting less than half the Toyota and Honda vehicles it wanted for May, Chief Executive Earl Hesterberg said in an interview. Models from Toyota, Honda and Nissan Motor Co. make up about 60 per cent of Group 1′s new-vehicle sales.
General Motors on Thursday gave a sobering assessment of its performance, despite more than trebling first-quarter net earnings to $3.2bn, reports the FT. The US carmaker’s advance was driven mainly by big one-off gains from the sale of stakes in former affiliates. Pretax earnings rose to $2bn from $1.7bn a year earlier. Dan Akerson, chief executive, described the results as “on plan”. He said a recent internal study had concluded GM should further simplify its North American manufacturing and sharpen focus on its brands, led by Chevrolet. GM shares slid 3.3% to $31.96 by late Thursday, below last November’s public offering issue price of $33. The latest results are the fifth consecutive quarterly profit since GM emerged from a government-backed restructuring in 2009. It is still 41% owned by the US and Canadian governments.
Ford Motor overtook Toyota as the US’s number-two car maker last year for the first time since 2006, underlining the two companies’ contrasting fortunes over the past 12 months, reports the FT. Ford posted a 19 per cent surge in sales, its biggest increase since 1984, while Toyota recorded a slight drop. Sales for General Motors, the market leader, advanced by 6.3 per cent, and Chrysler‘s were 17 per cent higher. Excluding models of four discontinued brands, GM’s sales were up 21.3 per cent. Ford owes its improved market share to a string of well received new models as well as public support for its decision to break from its two Detroit rivals, GM and Chrysler, by refusing a US government bail-out in the depths of the recession.
General Motors has said its GM Daewoo Auto & Technology subsidiary is to fully repay its Korean revolving credit facility this month, which had a drawn balance of $1bn at the end of September, Reuters reports. “Following our successful IPO, we will continue to take opportunities to strengthen our balance sheet,” Chris Liddell, chief financial officer, said in a press release. Earlier this month GM made a strong return to the stock market with one of the largest IPOs in US history, reducing the US goverment’s stake in the carmaker following a taxpayer bailout.
Ford is to cut its debt by $1.9bn, Reuters reports, as the carmaker tries get itself rated investment grade again. Ford made a tender offer whereby holders of $2.55bn of senior convertible notes accepted cash and company stock for debt, which it says will reduce annual interest payments by approximately $180m. The carmaker, which borrowed heavily in 2006 to avoid bankruptcy, is expecting a profit for 2010 and has already cut its automotive operations debt by about $12.8bn this year. Ford has also said it expects its automotive operations to be net cash positive by the end of 2010, the news agency reports.
The US Treasury will increase the number of common shares it plans to sell in the General Motors public offering on Wednesday, potentially making it the biggest flotation in US history, reports the FT. Strong investor demand drove the expected price range to $32-$33 a share from the initial $26-$29, GM said on Tuesday. The carmaker decided to increase its offering of preferred shares from $3bn to $4bn. The US Treasury is also selling more of its 61% stake than planned, and is expected to end up with just 27% of GM after the increased sale, the expected exercise of an overallotment option and a dilution as bondholders convert debt to common equity. The Treasury could exit GM altogether as early as next year, said people close to the deal. Lex meanwhile says the odds that GM’s bail-out will earn a profit for the US taxpayer “seem increasingly remote”, and Reuters reports that the success of the GM IPO could bode extremely well for Chrysler’s envisioned share sale, according to Sergio Marchionne, chief executive of Fiat.
General Motors is in final stage talks with long-time Chinese partner SAIC Motor Corp, Reuters reports, to sell equity in conjunction with its IPO. The news agency reported that two people familiar with the matter said the size of a stake is currently being discussed by the carmakers, following talks about technology sharing and SAIC’s ambition to move into non-Chinese markets – although any agreements would require Chinese government approval and may fall apart, the sources cautioned. Any sale of a stake in GM, which was bailed out by US taxpayers in 2009, would also face political scrutiny in the US Reuters added. GM is set to price its roughly $13bn IPO on November 17 and start trading the next day.
The announcement was expected — but the timing certainly wasn’t, Reuters reports, after GM’s chief executive Ed Whitacre resigned on Thursday just days before a key stock offering from the bailed-out automaker. Surprising even senior GM executives, Whitacre will hand over in September to Dan Akerson — a finance veteran who lacks previous experience in the auto industry, the FT says. Or perhaps not so surprised — board members pressed Whitacre to either go now or stay on for years more, sources have told Bloomberg.
Even so, Akerson promises to be a pragmatic leader who gets operational change done, according to the NYT. Akerson will indeed drive GM hard on sustaining profitability, the WSJ adds. But as for the offering — it’s been delayed to next week, Reuters says.
The bailed-out automaker General Motors could file for an initial public offering worth up to $16bn as soon as Friday or Monday, a person familiar with the matter has told Bloomberg. Although the filing may not detail an exact value, if made at this level GM’s offering would be the second-largest in US history. GM has also secured a $5bn credit facility as it prepares to go public on the offering, while the amount to be sold in the IPO will probably amount to at least a quarter of the firm’s equity, Reuters reports. Thursday morning’s second-quarter earnings release will likely be used to bolster the case for GM as a sound investment, the FT adds.
BMW on Wednesday underscored the rapid rebound in demand for premium cars when the German carmaker said its first-quarter operating profit in its car segment more than tripled when compared with the last three months of 2009, the FT reported. The world’s largest premium carmaker posted a profit before interest and tax in its core automotive segment of €291m in the first three months, compared to a profit of €93m in the previous period.
Toyota’s US sales soared 41 per cent last month from a year earlier, propelled by the most generous discounts in the Japanese carmaker’s history, the FT said. Other carmakers also posted hefty gains, helped by the improving economy and, in some cases, sharply higher low-margin sales to car-rental operators and other fleet operators. GM’s sales rose by 21 per cent, Ford was 40 per cent higher. Hyundai gained 15 per cent, pushing the South Korean carmaker to a first-quarter record.
Toyota has struck a deal to license elements of its petrol-electric hybrid drive system to Mazda, the smaller Japanese carmaker and long-time affiliate of Ford, the FT said. The deal, announced on Monday, would allow Mazda to launch a hybrid vehicle in 2013 based partly on the Toyota Prius, the companies said in a joint statement. The car is to be sold only in Japan at first, although Mazda said it hoped eventually to introduce it overseas.
Ford Motor signed a $1.8bn deal to sell its Volvo brand to Geely on Sunday in a move seen as emblematic of the shift in the global car industry’s centre of gravity from the US and western Europe to China, the FT said. Zhejiang Geely Holding Group, the parent of the Chinese carmaker, will acquire 100 per cent of Volvo and its assets.
Russian prime minister Vladimir Putin appears to have forgotten his recent comments about reducing the state’s role in the economy.
As the The Wall Street Journal reported on Friday: Read more
If the term “cash for clunkers” festooning just about every news website, TV programme and newspaper is starting to drive you mad, think again.
Not since before the financial crisis has a chunk of US government spending been ushered through with so little opposition, and as Democratic senator Debbie Stabenow remarked on Thursday, the scheme must rank as the “single most effective stimulus plan to date.” Read more
So says, perhaps, the Federal Reserve with regards to the Talf programme’s haircuts.
Asset-Backed Alert reports: Read more
The dismissal of Wendelin Wiedeking may clear the way for Ferdinand Piëch to leave his family an extraordinary legacy.
Porsche SE could inject the unlisted distributor into Porsche AG, which VW would then buy. Any remaining Porsche SE debt could be dealt with via a rights issue. As a result, a debt-free Porsche SE would own a majority of VW, alongside its minority partners the lower state of Saxony with 20 per cent, and the Qataris with another 20 per cent, after spending billions of euros exercising Porsche SE’s options. In time, when the situation settles down, Saxony’s long-contested veto over VW may be repealed. Hey presto, the family, via Porsche SE and led by Mr Piëch, could then take control of VW. Read more
New car registrations in Europe were down 18.3 per cent in February versus the previous year according to data from the European Automobile Manufacturers Association (ACEA). As the chart below shows the numbers have now been falling steadily since about April last year.
Can the auto sector get much gloomier?
General Motors is now warning that billions of dollars in government aid may not prevent it from running out of cash if vehicle sales do not improve soon. Meanwhile, the latest news from Japan’s auto makers suggests the industry’s general despair is spreading. Toyota earlier this week confirmed it is asking the Japanese government for up to $2bn in emergency loans amid growing difficulty in securing funding. Read more