World Economic Crisis Engulfs Europe′s Carmakers | Business| Economy and finance news from a German perspective | DW | 28.10.2008
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World Economic Crisis Engulfs Europe's Carmakers

The hazard lights are flashing over the European auto industry, with manufacturers cutting production and scaling back profit forecasts. Car parts suppliers will also be hit by the financial crisis, an expert told DW.

A traffic sign of a car crash

Warning: Crash ahead

Less than a week after cutting its earnings forecast again, the giant German automaker Daimler flagged plans Monday, Oct. 27, to shut down work for about four weeks over Christmas at key plants, including one producing its flagship luxury Mercedes-Benz cars.

What was needed now Daimler chief Dieter Zetsche told company employees was "the right mix of fighting spirit and perseverance."

The deepening economic gloom resulted in European car sales slumping sharply to 8.2 percent in September, the Brussels-based European Automobile Manufacturers' Association (ACEA) said this month.

A lone employee examines the engine of a car on an assembly line

Consumers aren't looking of a car fresh off the assembly line

"The drop in registrations confirms the aggravating market circumstances, as the fall-out of the financial crisis hits auto manufacturers hard," ACEA said, adding that registrations had hit their lowest level since September 1998.

The new drop in new European car registrations was unusual, ACEA said, as auto sales normally pick up after the slower summer months.

"The credit crunch weighs on the sector's ability to finance daily operations," the ACEA said. "Customers are increasingly hesitant to make large expenditures and find it more difficult to get their purchase financed."

Declines in demand for new cars pushed Daimler to shut down production could result in about 150,000 workers having an extended Christmas break.

This came in the wake of a slew of European carmakers such as General Motors' owned European Opel unit saying they were cutting production with the financial crisis hitting the car industry just as it battles to recover from high fuel costs and environmental worries.

BMW, the world's leading premium auto group, said over the weekend it was also leaving plants idle as the looming recession meant car buyers were shying away from showrooms.

Industry braces for downbeat results

The steady stream of grim news out of the European car business came as the industry prepares itself for a further round of downbeat company reports as the auto sector's third-quarter reporting season gains momentum.

While Munich-based BMW is expected to report a fall in profits and revenue, Europe's biggest auto manufacturer, Volkswagen, is predicted to post a modest rise in earnings on Thursday on the back of a solid performance of its core VW brand.

Workers assemble a Volkswagen Golf Plus in the production line in Wolfsburg

VW continues to do okay but its subsidiaries suffer

VW said last week that world-wide deliveries increased 3.9 percent to 4.8 million vehicles in the first nine months of the year, as strong demand from leading emerging economies helped to offset declines in other international markets.

VW's stock spiked 200 percent before settling to 520 euros at the close of electronic trading on Monday, up 146 percent from Friday.

Analysts said it was not luxury car-maker Porsche that was paying the high price, but short sellers who had expected the stock to fall in value and suddenly needed to settle contracts.

Porsche revealed Sunday it had advanced its stake from 35 to 42.6 percent of Volkswagen Group. Additionally, it had obtained options for an additional 31.5 percent of Volkswagen.

However, VW's offshoots Seat (Spain) and Skoda (Czech Republic) are being forced to cut production.

Knock-on effect hits car parts industry

A hostess is seen in front of a large model of an old Fiat 500 car where a new Fiat models drive through at the International Auto Show in Frankfurt

Fiat's future may not be as bright and shiny as it thinks

Signs have also emerged that the bleak business mood among carmakers was starting to spill over into auto parts sector, with the leading auto accessory group Bosch saying it was idling a key plant and sending 400 workers home.

"Many suppliers of the auto industry are not going to survives," Ferdinand Dudenhoeffer, director of the Center of Automotive Research (CAR) in Gelsenkirchen, told Deutsche Welle. "Many jobs are going to be cut."

Indeed, in addition to the downbeat third-quarter earnings' reports, it is the grim outlooks from the carmakers which are unnerving the industry and which have resulted in European stocks taking a big hit in recent weeks.

Releasing its latest third-quarter results, Italy's Fiat warned that in a "worst case scenario" its 2009 profits could slump to 400 million euros (513 million dollars) from a projected 3.4 billion euros this year.

France's two leading carmakers PSA-Citroen and Renault SA, also slashed their earnings forecast last week after fall in sales.

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