GO
Loading...

WRAPUP 1-European car makers suffer day of reckoning

PARIS/GENK, Belgium, Oct 24 (Reuters) - Car makers suffered a day of reckoning on Thursday when Ford announced Europe's third plant closure this year, Peugeot accepted state aid and even Volkswagen reported a big drop in profits.

The European car market has been shrinking as a result of the region's debt crisis, government spending cuts and rising unemployment, with sales in September falling at their fastest pace in the last 12 months.

While car companies had tried to hold out, the situation is getting too bad to cling to past glories.

``The car industry has been in crisis for about five years, so the writing has been on the wall for some time,'' said Henner Lehne, a Frankfurt-based analyst at IHS Automotive.

``Companies have had enough time to prepare for this, so no one should be caught on the hop like when Lehman Brothers collapsed,'' he said.

Facing an angry worforce, Ford said it would close its plant in Genk, Belgium, by the end of 2014, consolidating production of its new mid-sized models in an underused factory in Valencia, Spain, where wages are lower.

The U.S. carmaker also called a meeting with unions in Britain for Thursday, raising fears another plant closure was on the way. A spokesman declined to comment on media reports that it would shut a plant in Southampton, where it makes Transit vans.

Ford was clearly unhappy with the state aid announced on Wednesday for Peugeot.

``Once again we're trying to do what needs to be done, while our competitor asks for a massive bailout,'' said a Ford executive, who asked not to be identified.

Ford restructured its U.S. operations before the worst of the 2008-9 financial crisis and escaped the government-backed bankruptcies that General Motors and Chrysler both needed to recover.

MORE NEEDED

The Genk closure will increase Ford's overall capacity utilization in Europe from roughly 70 percent to perhaps as much as 82 percent by the end of 2014, analysts Jeffries said in a note, but more may be needed.

``Ford would likely need to take additional steps in terms of capacity rationalization, but this morning's announcement, if approved, would be a meaningful first step in addressing the company's excess capacity in the region,'' Jeffries said.

Ford's announcement of the Genk closure, which is expected to cost Ford about $1.1 billion but save $730 million a year, comes a couple of months after Peugeot started proceedings to close a factory in Aulnay, France.

GM has said it will shut a factory in Bochum, Germany, but not until 2016. GM Europe is due to update its restructuring plan before the end of the month.

While Ford has moved to cut capacity in Europe, rival GM appears ensconced in negotiations with unions, alliance parnter Peugeot and government officials.

Analysts estimate that excluding premium carmakers, European assembly plants are running at 68 percent capacity, well below the minimum profitable level of 75-80 percent, deepening the industry's pain and cash burn.

Even the region's biggest car company Volkswagen has been hit by the slump, reporting a 19 percent drop in third quarter operating profit to 2.34 billion euros as it used strong sales outside Europe to offer deals and protect sales at home.

Unlike GM Europe, Ford and Peugeot, VW is at least in profit and is using the money to re-engineer some of its technology so it can use the same platforms under the bonnets of its various marques, which include Skoda, Seat and Audi.

The investment, expected to total 15 billion euros, should start boosting profits as the common platforms roll out.

DIFFERENT STORY AT PEUGEOT

It was a different story at Peugeot, which announced a state backed deal for its lending arm which finances pay-as-you-go offers that are vital to shift stock in harsh economic times.

The French group said it was close to an agreement with banks on 11.5 billion euros of refinancing and had state guarantees on a further 7 billion euros for Banque PSA Finance.

The deal may attract some European Union objections, Peugeot acknowledged, and the German state of Lower Saxony, a major shareholder in VW, has said it will oppose the package as a possible breach of EU rules.

``It's not state aid, it's state support,'' Peugeot Chief Financial Officer Jean-Baptiste de Chatillon said, adding that Peugeot would pay for the state guarantee. ``It's priced at market values.''

In return for the funds, Peugeot said it would halt dividend payments and scrap stock option awards to executives.

Operating on a smaller scale than VW, Peugeot is working with GM Europe to share technology and beef up its purchasing power in an alliance. On Thursday the companies said they would make two small cars, a mini SUV and a larger car together.

Reporting a 3.9 percent decline in third-quarter sales, Peugeot warned that net debt would rise to 3 billion euros by year-end from 2.4 billion on June 30. Sales fell to 12.93 billion euros in the three months to Sept. 30 as revenue from the carmaking division fell 8.5 percent to 8.52 billion euros.

``What we're seeing are three different ways of responding to the European crisis,'' said London-based Credit Suisse analyst Erich Hauser.

``Ford is showing you can actually take out capacity - and maybe even get it done without anyone setting things on fire,'' he said. ``VW is seizing the opportunity to increase its share of markets it would otherwise find hard to penetrate.''

Peugeot's way, Hauser added, ``is to sit it out with government support and wait for the market to recover.''

Symbol
Price
 
Change
%Change
UG
---