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Carmakers: Outlook for 2009 bleak

2008-10-24 06:57

Milan/Frankfurt - Automakers in Europe and South Korea forecast bleak times ahead on Thursday as US players already hit hard by a fast slowing economy began a round of closures and job cuts.

Results from Germany's Daimler, South Korea's Hyundai Motor and Fiat in Italy added to the gloom facing the automotive industry as recession clouds gather in the developed world.

The news came as Daimler's US affiliate, Chrysler, cut a shift at a Toledo plant and brought forward the closure of its Newark (Delaware) operation, and as a report said General Motors was cutting jobs, too.

GM and Chrysler are in talks about a cost-saving merger deal that could also present Daimler a key opportunity to unload its 19.9% Chrysler stake that cost it 1.05 billion euros in the first nine months of the year.


"These are extraordinary and unprecedented times," Daimler chief executive Dieter Zetsche told investors during a call, citing hits to its sales, revenue, margins and order book.

The maker of Mercedes-Benz cars and the world's biggest truckmaker lowered its expectations for the year and said its own forecasts were guesswork. It implicitly guided for a break even at its luxury car business in the fourth quarter that a year earlier was generating a 10% margin.

"The (Daimler) figures are even below our very cautious estimates. Provisions for lower residual values and lower margin targets at Mercedes Benz cars are also surprisingly weak," said DZ Bank analyst Michael Punzet.

Fiat said global demand for its products could drop 10-20% and its profit tumble by as much as 65% in a "worst-case" scenario.

At Hyundai, South Korea's top car maker, a senior official expected demand in emerging markets to fall next year.

Renault results are due out later in the day in Paris.

Major purchases on hold

Global car makers face a sharp drop in sales as drivers put off major purchases on fears of a recession and the cost - if not the lack - of getting loans.

Widespread production cuts are pushing parts suppliers to the brink and forced German diversified conglomerate Rheinmetall to also lower guidance on Thursday due to plummeting orders for pistons, valves and oil pumps.

"We will see a number of collapses in some of our suppliers," Daimler's Zetsche cautioned.

The market had expected their outlooks to be bad but they did not know how bad until Thursday when the first batch of results from the sector came out.

At 1512 GMT, the DJ Stoxx European auto index fell 3.6%, while the wider market was little changed. Fiat shares were briefly suspended twice for excessive losses. GM's stock gained 1.6% in New York.

Five-year credit default swaps on Fiat were about 140 basis points wider at 992 basis points, a trader said.

Daimler cut its revenue and profit forecast for 2008 after reporting a plunge in its third-quarter results by two-thirds. Industrial liquidity also dropped sharply but analysts and the company said its finances remained strong.

"Despite the ongoing financial market crisis, the group has a solid financial position, which should also remain stable throughout the rest of the year," Daimler said.

Fiat said its trading profit could plunge by as much as 65% next year, and although the maker of cars, trucks and tractors called its forecast a "worst case" scenario, analysts saw it as definitive. "It will be seen as a profit warning," one analyst told Reuters.

Investors were concerned to see the rate at which Fiat's debt was increasing.

Hyundai, the world's number five auto maker along with affiliate Kia Motors Corp, posted a 38% fall in third-quarter net profit. Although it beat expectations, its outlook was gloomy.

"The market situation in emerging countries is much worse than expected," Park Dong-wook, a director at Hyundai's treasury division, told reporters.

Asked whether he agreed with his Korean and Italian competitors about the bleak outlook for 2009, Daimler's Zetsche refrained from giving a forecast.

"We can compete on who knows the worst numbers and see who's the best at that, but I think we would contribute - in the sense of a self-fulfilling prophecy - to a more difficult future environment," he explained.


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