Europe Auto Production Seen Slowing as Inventory Builds

European automakers will probably slow production this quarter to shed inventory that’s building as output exceeds vehicle purchases, Honeywell International Inc. (HON) Chief Financial Officer Dave Anderson said.

European registrations of new cars and light trucks are lagging behind production by as much as 2 percentage points since the beginning of the year, leading to an “inevitable correction,” he said in a telephone interview yesterday.

“It’s not significantly greater than demand, but we think it’s enough that there will be some correction,” Anderson said. “The correction will most likely occur through the summer plant-down schedules that would be in the third quarter.”

European vehicle sales have declined as the region’s economy slumps, unemployment remains high and governments struggle to rein in spending. In June, total new-car registrations fell 6.3 percent from a year earlier to 1.18 million, the lowest for the month since 1996.

Honeywell expects sales for its transportation unit, which supplies turbochargers mostly to European automakers, to rise 2 percent to 4 percent this quarter, less than the 5.2 percent increase to $947 million for the second quarter. The second-quarter sales growth was the unit’s first since 2011’s final three months as the decline in European Union vehicle production narrowed to 1 percent.

The company expects slower growth for the transportation unit this quarter “because we think there’s an inevitable inventory correction that’s going to occur,” Anderson said.

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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