PARIS -- Automakers profits are at risk this year and next due to predicted declines in global unit sales.
Investment bankers Goldman Sachs predict that PSA/Peugeot-Citroen will have an operating loss of nearly 1 billion this year while BMW and Renault each will report operating losses of more than 200 million.
Other analysts are more optimistic on BMWs ability to keep making money, but they suggest that Daimler and Fiat group could see more dramatic declines in profitability and might even report losses.
Pressure on sales
While the analysts disagree on the exact figures, most of the experts contacted by Automotive News Europe predict that the sales slump will last through 2010.
Their forecasts put automakers revenues, operating profits and margins in the next two years well below levels seen in 2008.
Companies will have to adjust to a lower level of sales, said Max Warburton, a London-based analyst with Sanford Bernstein. This year is going to be pretty awful for everybody. The industry has just got to pray that things improve from a disastrous fourth quarter, Warburton said.
Automakers declined requests to comment on the financial outlook for 2009 and beyond.
Executives and spokesmen at Renault and PSA said that they want to present final results for 2008 before doing any future forecasting.
The European market was down 7.8 percent in 2008, with new-car sales dropping to a 15-year low of 14.71 million units, according to ACEA, the European carmakers association.
Citigroup sees the market dropping 15 percent in 2009, while Goldman Sachs projects an even larger 20 percent decline.
If these projections are correct, total European sales would fall by between 2.2 million and 2.9 million new cars in 2009, which Citigroup says would erase more than 9 billion in profits from car companies bottom lines.
The global credit crunch is preventing carmakers captive finance arms from supporting new-car sales or contributing their traditional share of automaker profits.
Tight monetary conditions also are raising the cost of borrowing, which further weakens companies financial outlooks.
Weak sales in the US and slowing demand for cars in emerging markets will worsen the outlook, leading to Citigroups prediction of dire financial situations for most automakers during 2009.
Hows your health?
Companies with relatively low margins during 2008, such as BMW, PSA and Renault, are expected to suffer more than Daimler, Fiat, or Volkswagen, all of which are expected to report operating margins above 5 percent in 2008.
I dont think the crisis differentiates between companies, said Stefan Burgstaller, a London-based analyst with Goldman Sachs. Survival is really a question of how healthy you were going into it.
While European automakers already have reacted to the slowdown with a range of cost-cutting measures, all experts contacted by ANE said more should be expected in the coming years.
Major capacity adjustments are necessary, said Albrecht Denninghoff, a Frankfurt-based analyst with Germanys BHF-BANK.
There have been some temporary programs, but the permanent capacity reduction programs are still to come.
Factory closures in Europe usually entail high front-end costs as workers are let go, but the long-term effects should be positive for the cost side of the balance sheet, Denninghoff said.
To slow cash burn, which Citigroup estimates at more than 32 billion over the 2008-2009 period, automakers can also be expected to cut investment in new platforms, technologies and production sites in developing markets.
Goldman Sachs forecasts an average 20 percent decline in capital expenditure this year.
Analysts agree that a number of unknown factors still could affect the market.
An easing of credit conditions could help revive sales, while greater government assistance to carmakers at the national or European level could limit the financial squeeze.
We are in uncharted territory, and theres not much evidence where its going, Sanford Bernsteins Warburton said. If I was running a car business I would be extremely concerned.