Big Losses at Two European Automakers

Big Losses at Two European Automakers
By DAVID JOLLY
Copyright by The New York Times
Published: July 29, 2009
http://www.nytimes.com/2009/07/30/business/global/30daimler.html?ref=global-home


Daimler, the German maker of Mercedes-Benz cars, posted a second-quarter loss of 1.1 billion euros ($1.6 billion) on Wednesday, but predicted that its business would improve in the second half of the year.

The loss in contrast to a profit of 1.4 billion euros a year earlier, but was in line with the estimates of analysts surveyed by Bloomberg.

Daimler, based in Stuttgart, said revenue fell 25 percent, to 19.6 billion euros. Unit sales totaled 391,500 cars and commercial vehicles, down 31 percent from a year earlier.

While sales of commercial vehicles will continue to drag, the company said that Mercedes-Benz cars would experience “a revival of business” in the second half. The company said it expected “a gradual improvement” in the group’s overall profitability “in the course of the year.”

Still, Daimler warned that its 2009 revenue would be well below the 95.9 billion euros that it posted in 2008. It did not provide details, but hinted at job cuts, saying: “As a result of reduced production volumes and the targeted productivity advances, we assume that the number of employees at the end of 2009 will be lower than a year earlier.”

In Paris, PSA Peugeot Citroën surprised investors with the news that it had managed to generate 467 million euros in cash flow by running down inventory of cars by 31 percent and cutting costs. Analysts had expected negative cash flow of about 1 billion euros or more.

The French company, which ranks second in size only to Volkswagen among Europe’s carmakers, posted a net loss of 962 million euros for the first half. A year earlier, the company had a first-half profit of 733 million euros. Its shares rose 8.4 percent in Paris afternoon trading.

Governments in Europe, including Germany, France and Italy, have created incentives for consumers to scrap older models and replace them with new cars, helping to keep sales in those markets strong, even as demand in Spain and Britain slumps.

Philippe Houchois, head of European auto industry research at UBS in London, noted that the incentives had focused on the lower end of the market, which helped companies like Peugeot that make smaller cars. The incentives have not done much for the luxury sector, he noted, and there are also questions about whether those incentives will be continued when budgeted funds run out.

Nonetheless, “there have been some signs of stabilization in sales of luxury cars for both Daimler and BMW,” he said. “The rate of decline at least seems to be slowing.”

Shares of Daimler, which are up about 19 percent this year, rose 3.7 percent in Frankfurt afternoon trading after the results.

Daimler’s debt declined by 5 billion euros from the end of 2008, to 43.7 billion euros.

Under Dieter Zetsche, its chief executive, the German company in March agreed to sell 1.95 billion euros worth of new shares of stock to Abu Dhabi, making the emirate its largest shareholder with a 9.1 percent stake. The Kuwaiti government ranks second, with a 6.9 percent stake.