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South Europe Carmakers Rise on Signs of Austerity Ending

Fiat SpA (F), Renault SA (RNO) and PSA Peugeot Citroen (UG) gained more than 5 percent on signs that governments may take measures to spur growth after the euro-area economy contracted more than forecast in the first quarter.

Fiat jumped as much as 9.3 percent in Milan trading today, while Peugeot climbed as much as 8.3 percent and Renault advanced as much as 5.3 percent in Paris.

First-quarter gross domestic product in the 17-nation euro zone fell 0.2 percent, extending a recession to a record sixth quarter and increasing pressure on the currency bloc’s leaders to take action to reverse the decline. The median of 39 estimates in a Bloomberg survey was for a 0.1 percent drop.

“There’s a feeling on the macro side that we may be drawing to an end to the austerity in Europe,” said Philippe Houchois, a London-based analyst with UBS Ltd. “If austerity ends, people in South Europe would start buying cars, and not necessarily German ones.”

Fiat gained as much as 47 cents to 5.45 euros and was up 7.1 percent as of 2:27 p.m. in Milan. Peugeot was up 5.9 percent and Renault was 3.8 percent higher in Paris. The three have all advanced 22 percent or more this year.

Fiat, Renault and Peugeot have been hit harder by Europe’s recession than their German counterparts because the three automakers are more reliant on the French, Spanish and Italian markets, which have plunged in recent years. First-quarter auto deliveries in across Europe dropped 9.7 percent.

Austerity Ending

France declared earlier this month that the era of government budget cutting was over after Germany offered flexibility on deficit reduction.

“We’re witnessing the end of the dogma of austerity,” French Finance Minister Pierre Moscovici said on May 5 on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.”

The European Central Bank cut its benchmark interest rate to a record low of 0.5 percent this month and President Mario Draghi said the ECB is ready to act again if needed.

“The mass carmaker brands, such as Fiat, Peugeot and Renault, have suffered most from the austerity measures,” said Gian Primo Quagliano, head of automotive researcher CSP in Bologna. “Any indication that European leaders have finally understood the need to change their policy, with even Germany starting to feel the pain, is a positive sign.”

Traders covering short-selling positions on Renault, Fiat and Peugeot may have also pushed up the shares, Houchois said.

The number of Renault shares on loan, an indication of short-sellers interest, is 31 percent of the free float, the most since at least 2006, according to data compiled by Markit. The short interest in Peugeot is 21 percent of the free float, while the measure for Fiat is 17 percent, the data show.

Short sellers borrow stock and sell it, hoping to buy them back at a lower price and pocket the difference.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Chris Reiter at creiter2@bloomberg.net

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