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Monday, October 29, 2012

More European Auto Woes ... This Time It's Renault

Europe's auto industry is really struggling and will for several more years at least. As a result, other parts of the world and their manufacturers, including GM and Ford, will be negatively affected as well.

How bad it it? Well, Renault is doing better than lots of its competition in Europe, but its situation is an ugly one as reported in Renault Warns on Full Year Sales After Revenue Falls:

"French car maker Renault . . . warned that it may not hit its target of selling more vehicles this year than in 2011, providing more evidence that mass-market European automobile manufacturers are in the throes of their worst crisis in decades. . . . but it may be better equipped to avoid the radical restructuring than ailing European rivals such as PSA Peugeot Citro├źn, General Motors Adam Opel unit, and Ford Motor Co.'s European operation. . . .

"The main risk to cash flow is the European market," Mr. Thormann said. "The paradoxical situation is that we're short of capacity or sold out in many markets but we face a headwind in Europe," he said. . . .

Renault said total third-quarter revenue fell 13% compared with a year earlier . . . . Revenue at its automotive division dropped 14% while vehicle sales declined 5.8% to 596,064 units. Renault's sales volume dropped 18% in Europe in a market that shrank 9.3%, reflecting the company's large exposure to falling demand in southern Europe. But Renault said 55% of sales were outside Europe, where revenue per vehicle sold is now close to its European levels.

The relatively upbeat view from Renault contrasts with Ford's disclosure that it would reduce its European output by 18% over the next two years by closing three factories. . . . Renault's goal is to lower the point at which the company covers its fixed costs to annual sales of 2.4 million vehicles....

Renault hasn't been able to escape the price war in Europe as car makers struggle to preserve market share and keep chronically underused assembly lines moving by slashing sticker prices in the companies' showrooms. . . .

But Renault is clearly better-placed than some of its mass-market rivals due to its wide range of popular low-price and high-margin vehicles that is proving to be a solid antidote for households seeking to preserve their spending power without sacrificing the freedom that comes with owning a car. Renault sold 14,000 more entry level vehicles from its Dacia unit world-wide in the third quarter from a year ago compared with a 51,000 decline for the rest of the group.

Renault can also fall back on its decade-old alliance with Japan's Nissan. The companies aim to nearly double annual efficiency savings stemming from their long-running alliance to €4 billion in 2016 from this year's expected level."

SUMMING UP

In the end, the strong will survive and perhaps even thrive.

But when that will be, nobody knows as the European and global economies will continue to encounter severe headwinds for at least several more years.

It makes the U.S. look great by comparison, even though things aren't going all that well here either.

We are stabilizing and even showing some improvement, however, and that's a necessary precondition for sustained growth down the road.

Meanwhile, lots of European based auto companies will struggle to stay alive as their economies, governments and consumers continue to restructure and suffer. 

Thanks. Bob.

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