Auto stocks punished in Q4

The latest Automotive News Europe/PricewaterhouseCoopers Transaction Services Shareholder Value Indices reveals that Europe’s auto industry suffered further setbacks in shareholder value in the final quarter of 2018. The value of car manufacturers fell 12.8 percent, while auto retailers dropped 10.9 percent and component makers were the worst hit, down 22.2 percent. This was the largest quarterly fall for suppliers since the 26.7 percent drop recorded in the first three months of 2015.

Among automakers Renault was the weakest performer. Following the arrest of CEO Carlos Ghosn in Japan its shareholder value fell 26.8 percent. It was not alone as all automakers lost ground in the fourth quarter, with Peugeot down 19.7 percent and Fiat Chrysler slipping 16.3 percent. Even the best performer, Volkswagen Group, was down 7.3 percent.

The EU’s implementation in Q3 of the new Worldwide harmonized Light vehicle Test Procedure (WLTP) also had an effect on investor sentiment toward the sector in Q4. The new method of measuring vehicle emissions and fuel usage, requiring time-consuming testing of every car model, caused significant marketplace disruption for automakers and their suppliers. At one point, for example, VW had 250,000 cars awaiting delivery in Germany.

The declines in the shareholder value of automakers and auto retailers were also in line with the exceptionally weak final quarter of 2018 for stock markets globally. Over the three months, the UK’s FTSE100 fell by 9.6 percent, the U.S.’s S&P 500 dropped by 13.5 percent and Germany’s DAX30 dipped 13.8 percent.

However, at the end of 2018 the values of automakers and suppliers were back close to recession levels, with investors concerned about the effects of a slowdown in Chinese car sales and worried that that U.S. and European automotive markets may have peaked. The depressed values also reflect a concern about the ability of existing industry participants to manage the transition from conventional gasoline and diesel technologies to future mobility solutions. Some analysts, however, think the pessimism has been overdone and that the current depressed share prices represent buying opportunities.

“It was a challenging quarter for the industry,” PwC Head of Automotive Deals Jason Wakelam said. “While the general economic uncertainty weighed heavily on many industries, the risks to the auto industry are greater given the nature of this largely discretionary spend.”

When Renault CEO Ghosn was arrested in mid-November for alleged financial misconduct, Renault’s share price immediately fell by almost 10 percent. It dropped further in volatile conditions as the quarter progressed, although there has been a slight rally in the price since the start of 2019.

Investors in the French automaker have been keen to discover what was really behind the timing of Ghosn’s arrest, with much speculation about whether it came as he was planning a management shake-up at Nissan. Ghosn’s future has sparked concerns that the future of the Renault-Nissan-Mitsubishi alliance is in doubt.

Like other European automakers, Renault was affected by a slump in sales in key emerging markets. During the final quarter it reported a 6 percent drop in revenue for Q3. Compounding a sales decline in India, Renault suffered from currency and market slumps in Argentina and Turkey and the effect of its withdrawal from Iran.

Peugeot’s decline of 19.7 percent was the next biggest Q4 fall in shareholder value among automakers. This reversed the previous quarter’s gain of 18.8 percent.

Like Renault, Daimler’s and BMW Group’s earnings have been hit by lower car sales, higher spending and the new pollution rules. There are also continuing worries about sales in China against the background of the trade war with the U.S., where many of their products destined for sale in China are produced. Daimler lost 15.8 percent of its shareholder value in the last quarter of 2018. BMW, which reported a 27 percent downturn in profits for Q3 and a marked narrowing of its operating margin from 8.6 percent to 4.4 percent, managed to contain the drop to 9.1 percent.

VW, whose shares had fallen to a low of 92.36 euros in October 2015 in response to its diesel-emissions cheating scandal, started 2018 at nearly double that level. Although its share price has been volatile since then, it rallied at the end of October 2018 because of good financial results. This showed that in Q3 it had weathered the storm to post a forecast-beating operating profit of 3.5 billion euros ($4 billion) in the three months to the end of September. Although 19 percent below the figure for Q3 2017, that was still well above analysts’ forecasts.

Q4 marked the end of a particularly difficult year for the supplier sector, which had begun with a small gain of 1.7 percent in Q1, followed by losses of 7.5 percent and 13.0 percent in the second and third quarters, respectively. Over the full year, the sector lost 39.4 percent of its value.

The Q4 setback hit all of the publicly traded suppliers tracked by ANE and PwC. Every firm recorded a fall of more than 10 percent, with seven declining between 20 percent and 30 percent and four falling by more than 30 percent.

Italian design and engineering firm Pininfarina, down 10.1 percent, and French-based fluids transfer and mechanisms specialist Akwell (formerly MGI Coutier), down 11.3 percent, were the best of the group. At the other end of the table were the French megasupplier Faurecia, down 36.2 percent, and another French heavyweight, Plastic Omnium, which slipped 37.9 percent.

Pininfarina was the only auto supplier to record a gain in shareholder value in 2018, up 14.4 percent. Akwell, meanwhile, shed more than half its value. The weakest performance of all, however, came from the Italian filtration and suspension systems specialist Sogefi, which lost 64.3 percent of its shareholder value over the 12 months.

Swedish-based Bilia was the only auto-focused stock in the three ANE/PwC shareholder value indices to manage an improvement in shareholder value in Q4. Bilia, which is one of Europe’s largest vehicle retailers with operations in Norway, Sweden, Germany, Luxembourg and Belgium, gained 16.4 percent in value. It was also the only dealer in the table to finish the year with a gain, up 7.1 percent. Reflecting an increase in its used car and service activities, Bilia achieved a 10 percent gain in operating profit in Q3 despite a 3 percent decline in sales. Last October it also announced plans to expand its used car business.

Elsewhere in the retail sector the declines ranged from a drop of 12.5 percent for the Netherlands' largest car dealer, Stern Groep, to 18.2 percent at global retailer and distributor Inchcape.