European automakers can survive 2012 sales downturn, ratings agency says
A recession-like scenario for European automakers next year is unlikely, according to Fitch Ratings.
The region's carmakers have a leaner cost structure, broader diversification and higher liquidity than when the 2008-2009 economic downturn hit, said Emmanuel Bulle, senior director in Fitch's European Corporates team.
"Unlike in the second half of 2008, early warning signs are clearly visible for manufacturers and they can prepare - and have prepared - for a potential slowdown in sales," Bulle said in a statement released on Tuesday.
Car manufacturers learned the lessons from 2008 when inventories were at a record level and led to a cash hemorrhage from working capital needs, Bulle said.
"They are now managing their working capital cycles much more efficiently and several groups have already pre-emptively taken measures to slow or cut production at an early stage and avoid further stockpiling. Drastic and sudden cuts in production leading to under-absorption of fixed costs are therefore unlikely," he said.
Fitch said carmakers have spent the past two years saving costs, downsizing or cutting production capacity in Europe, working on more efficient processes and increasing the share of flexible staff. Temporary workers represent between 10 percent and 15 percent of car manufacturers' total workforces, leading to an easier adjustment if necessary.
Automakers such as Renault and PSA/Peugeot-Citroen are also now less dependent on western Europe, where Fitch sees the highest risk of a slowdown in sales, or lack of recovery, in the final quarter of this year and in 2012.
Liquidity across the sector is also substantially higher at present than it was at end of June 2008 at the onset of a sharp decline in new vehicle sales.
Automakers' cash and cash equivalent reserves were 50 percent to 70 percent higher at the end of June 2011 than at end of June in 2008, except for Fiat S.p.A., excluding Chrysler, for which gross liquidity was about three times higher, Fitch said.
In addition, virtually all automakers have fulfilled their refinancing needs for the remainder of 2011 and 2012. Even financial services operations could operate for six to 12 months without any access to capital markets, according to manufacturers.