Sunday, January 27, 2013

Autocar Online - News

Autocar Online - News

More Pain To Come

Posted: 20 Jan 2013 05:39 PM PST

With sales still falling and cars being stockpiled, European carmakers will have to slash production again this year say analysts

Hindsight is very illuminating. Especially when you have the hard figures to make things clear. Those bright chaps in Credit Suisse's Autos team have just released a research note with some of their 2013 predictions about the European car industry. Their conclusions are not pretty, but I'll get to that in a second.

The opening graph shows the average amount of 'Inventory' (unsold cars) held by European carmakers over the last nine years. Expressed as the number of days of supply, the graph shows that around 70 days stock of new cars is the norm. 

What caught my eye was that the line took off (which means new car sales started to slow) in the fourth quarter of 2007, rapidly peaking 12 months later in the fourth quarter of 2008 at over 90 day's stock. You might remember that Lehman Brothers collapsed in September 2008, the first big victim of the bursting of America's $9 trillion property bubble. 

The graph clearly shows that the synchronised trouble in the global economy started a year earlier, as car sales in Europe started to slow dramatically, while production ploughed onwards. You have to wonder why car makers seemingly ignored the escalating stocks after the first six months and didn't start to slow production more quickly.

Anyway, the bad news is the the line on that graph crept above an estimated 90 days stock last year and has stayed there. The upshot is that Credit Suisse is predicting, unlike some other forecasters, that Europe's car makers will have to make another round of painful production cuts in 2013.

CS is suggesting big cuts in production in every quarter of 2013, adding up to a massive seven percent of today's, already depressed, output. This is partly because CS predicts that new car sales in 2013, across Western Europe, will fall another 3.5 percent compared to 2012, but it's also because car makers need to reduce the amount of unsold stock. All of which, of course, means more misery for workers right across the industry, from the suppliers to the guys delivering cars to dealers.

The CS experts also look in detail at the position of Peugeot-Citroen (PSA), Renault and Fiat. Suffice to say, all three will be having a very difficult time in 2013, but Peugeot-Citroen's situation is absolutely dire. Credit Suisse says that PSA lost £1.4bn in 2012 and this might only 'ease' back to a £1.1bn loss in 2013. With the European economy still firmly anchored to the bottom by the Euro zone crisis, you have to wonder how long PSA can stagger on without more major industrial surgery, surgery likely to be opposed by the French government.

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