Daimler AG (DAI) and Porsche AG provided evidence that the worst European car market in 17 years has started to spread to the luxury brands, mirroring a broader recession that has spilled from southern Europe to Germany.
Stuttgart, Germany-based Daimler said yesterday that operating profit at Mercedes-Benz Cars will fall this year, lowering a previous target of matching the 2011 figure, while Porsche plans to build fewer than the 155,000 cars and sport-utility vehicles originally planned for next year.
Daimler, Porsche, Bayerische Motoren Werke AG (BMW) and Volkswagen AG (VOW)’s Audi brand have so far proved resilient to the plunge in sales that has plagued Fiat SpA (F), PSA Peugeot Citroen and Renault SA. (RNO) The German automakers have been sustained by a robust domestic market and booming exports to China and the U.S. The German market is now also showing signs of weakening.
“If a downturn lasts for longer, which this one is, premium is not immune from pricing trends,” said Arndt Ellinghorst, a London-based analyst at Credit Suisse Group AG with an outperform recommendation on BMW, Porsche and VW, and a neutral on Daimler. “The pricing environment in Europe is the biggest problem,” with incentives spreading from Italy, Spain and France to Germany.
European car sales dropped 8.5 percent in August, the steepest decline since February, the Brussels-based ACEA industry association said on Sept. 18. The group forecasts that European deliveries will hit a 17-year low in 2012. German car registrations fell 4.7 percent in August, pushing the eight-month sales figure to a 0.6 percent decline.
The region’s volume carmakers, hit hardest by the European market’s downward spiral, are taking even tougher measures. Peugeot agreed yesterday to sell a majority stake in its trucking unit to raise cash. Fiat’s volume brands are eliminating 20 percent of management jobs in Europe, according to a person familiar with the matter.
Dealers in Germany, Europe’s biggest economy, offered discounts on average of 12.1 percent off the sticker price last month, the highest rate in more than a year, according to industry publication Autohaus PulsSchlag. Price cuts by Daimler’s Mercedes-Benz brand in August jumped to 11.7 percent from 9.2 percent a year earlier. Incentives at Audi widened to 9.7 percent from 9.2 percent.
The increased incentives helped Audi and Mercedes, the world’s second- and third-biggest luxury-car producers, post sales gains last month in Europe, according to ACEA figures. Registrations at top-ranked BMW fell in the region.
Daimler shares rose 0.8 percent to 39.53 euros as of 1:42 p.m. in Frankfurt, and VW gained 1.1 percent to 151.60 euros. BMW fell 0.2 percent to 59.31 euros. BMW, Daimler and Porsche shares are among the worst performers on the Stoxx 600 Automobiles & Parts Index this year, gaining as much as 16 percent versus a 24 percent increase in the index.
Porsche, the Stuttgart-based maker of the 911 sports car and Cayenne SUV, will still increase production next year, though less than planned, spokesman Hans-Gerd Bode said by phone yesterday. The VW unit is scheduled this year to build 140,000 vehicles. The slower growth rate “is due to the difficult economic environment, especially in Europe,” said Lukas Kunze, another Porsche spokesman.
“I want to hear that carmakers are cutting production, cutting working hours, as I would be worried if they weren’t,” Stefan Bauknecht, a Frankfurt-based portfolio manager at Deutsche Bank AG’s DWS unit. “That gives me confidence that they are on top of the situation.”
Mercedes-Benz Cars, which also includes the Smart city-car brand, has already been taking efficiency measures in response to the market decline and is setting up a savings project to be called “Fit for Leadership,” Chief Executive Officer Dieter Zetsche said at a Stuttgart press conference. Details will be worked out in coming weeks, he said.
Ebit last year at Mercedes-Benz Cars totaled 5.2 billion euros ($6.7 billion). The unit’s first-half operating profit fell 10 percent to 2.57 billion euros. Zetsche said second-half earnings will decline from the first six months of 2012.
“The overall environment in Europe is deteriorating, with more negative developments than expected,” Zetsche said.
BMW is sticking to a 2012 forecast for record pretax profit and deliveries, said Mathias Schmidt, a spokesman at the Munich-based carmaker. Pretax profit in 2011 was 7.38 billion euros. VW is also maintaining its forecast for operating profit to match last year’s 11.3 billion euros, said Marco Dalan, a spokesman at the Wolfsburg, Germany-based company.
In contrast to the luxury carmakers’ forecasts of positive earnings, volume manufacturers such as Paris-based Peugeot, Turin, Italy-based Fiat and the European units of General Motors Co. (GM) and Ford Motor Co. (F) are posting losses. The U.S. carmakers have scheduled several days of shutdowns at their main German plants starting this month, and GM’s Opel brand is looking at closing a factory in the city of Bochum after 2016.
Peugeot, which is closing a plant on the outskirts of Paris and cutting 8,000 jobs, is selling its Gefco logistics business to OAO Russian Railways for 800 million euros, a transaction that will also generate a special 100 million-euro dividend for Europe’s second-largest carmaker.
Renault Chief Operating Officer Carlos Tavares said today that the “storm in Europe risks continuing.” The Boulogne-Billancourt, France-based carmaker is currently using shortened workweeks for some factory employees to lower production, La Tribune newspaper cited Tavares as saying. His comments were confirmed by Raluca Barb, a Renault spokeswoman.
Fiat’s volume car brands, which include Alfa Romeo and Lancia, plan to cut 110 of 550 managerial positions in Europe, according to the person, who asked not to be identified discussing internal personnel decisions. The manufacturer expects an operating loss of 700 million euros in Europe at its volume brands this year.
CEO Sergio Marchionne is meeting with Prime Minister Mario Monti tomorrow in Rome to outline his plans for Fiat’s Italian operations.
“We have to avoid that an economic crisis will become a structural crisis -- meaning plant closings, production halted,” Gianfranco Polillo, an undersecretary in Italy’s Finance Ministry, said in a Bloomberg TV interview. “We need to stay calm.”
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