TABLE OF CONTENTS
Daimler and Bosch in Electric Engine Joint Venture
Microsoft and Toyota to Build Car Interface
Fiat Increases its Stake in Chrysler
GE Sees Very Strong Growth Outlook
Volkswagen Quarterly Sales at Record High
Volvo Raises Forecasts for Truck Markets in US and Europe
Ford Reports High First Quarter Earnings
Germany’s Daimler and Bosch plan to jointly develop and produce electric engines, demonstrating how the shift towards electric cars is reshuffling whole value chains in the car sector.
The premium carmaker and the world’s largest automotive supplier by sales said they signed a letter of intent for a joint venture aimed at producing electric engines for battery-powered cars starting next year. They said the engines would first be used for Daimler’s Mercedes-Benz and Smart brands, but would at a later stage also be sold by Bosch to other carmakers.
Western car manufacturers usually take components from suppliers but design and assemble the engines themselves. The world’s largest premium car manufacturer, BMW, even carries the word “engines” in its name.
But analysts said the move into battery-powered cars will make engines less of a differentiating factor, and it has also spurred a string of alliances within the car sector and with companies from other areas such as battery makers and car rental firms.
Daimler has been one of the most active collectors of partnerships. The premium car and truck car group has sided with German industrial conglomerate Evonik to jointly develop and produce lithium-ion batteries and it has a partnership and small stake in French mass carmaker Renault for small and electric cars.
It also owns a stake in electric sports car maker Tesla and it is co-operating with Chinese carmaker BYD on an electric car brand in China.
Microsoft and Toyota recently announced a partnership to build a new vehicle telecommunications platform that manages the energy efficiency of electric cars.
Steve Ballmer, Microsoft chief executive, said the platform would be built using cloud computing, in which tasks are performed remotely, allowing for broader integration of information between the customer’s car, home and mobile device.
Using the new platform, drivers will be able to turn the heat on in their car from their phone, check the battery power remotely and make sure the car charges during off-peak times when demand is low and electricity least expensive.
The two companies said they would invest Y1bn ($12m) in Toyota Media Services, a subsidiary of Toyota, to develop the platform using Microsoft Windows Azure. The services will be available in 2012 in Toyota’s electric and plug-in hybrid vehicles, but is expected eventually to reach 170 countries.
Italy’s Fiat has raised its stake in Chrysler from 25 per cent to 30 per cent after fulfilling a further condition stipulated by the US government in the Detroit carmaker’s 2009 restructuring.
Chrysler said recently that it had met the condition by achieving revenues outside North America of more than $1.5bn since it emerged from bankruptcy protection, and signing an agreement to distribute one or more Chrysler models through the bulk of Fiat’s dealers in Brazil – the carmaker’s second-largest market after Italy – and the EU.
The increase in Fiat’s stake marks another step in its drive to gain majority control of Chrysler. Sergio Marchionne, chief executive of both companies, has said that his goal is to gain a 51 per cent stake this year ahead of a planned public share offering.
Chrysler has repaid $7.6 billion in loans to the US and Canadian governments marking a symbolic end to the carmaker’s 2009 bail-out and allowing Fiat to raise its stake in its American partner to 46 percent.
The US Treasury confirmed that Chrysler had repaid its outstanding loans under the Tarp programme due in 2017, and said it had received $1.5bn in interest and fees to date.
Recently Chrysler raised $7.5bn from banks and private investors. The loans were priced at about 6 per cent, or half the 12 per cent rate the company was paying on its federal loans.
Fiat said that following Chrysler’s full repayment of its US and Canadian government debt, it had bought another 16 per cent of the company for $1.27bn, bringing its stake to 46 percent.
The Italian company expects to increase this stake further to 51 per cent in the last quarter of this year, after helping Chrysler to launch a Fiat-derived vehicle capable of achieving 40 miles per gallon. Fiat has an option to raise its stake further to 76 per cent under its operating agreement with the US Treasury.
Chrysler earlier announced its first quarterly net profit since emerging from Chapter 11 bankruptcy protection nearly two years ago. The carmaker is building market share thanks to an improved and expanded vehicle line-up.
General Electric told investors at its annual meeting that it is facing its best outlook in a decade as both its manufacturing and financial services business continue to gather strength.
GE’s better-than-expected earnings for the first quarter of the year were almost entirely driven by the continuing rebound at GE Capital, its financial services arm. But the company said at the meeting that its industrial businesses, which range from jet engines to medical equipment, were now “positioned for growth”, and that the earnings growth outlook was “very strong” into 2012.
It is putting emphasis on the energy business, where it has spent about $11bn on acquisitions, in sectors that it hopes will show rapid growth such as oil services.
Volkswagen reported its highest quarterly sales figures, selling 2m vehicles in the three months to the end of March, continuing a strong performance which saw the German carmaker make record profits last year.
Europe’s largest carmaker by sales reported revenue up more than 30 per cent to €37.5bn ($55bn) compared with the same quarter in 2010.
Strong car sales helped lift net earnings for the three months to the end of March from €473m to €1.7bn, while operating profit more than tripled from €848m to €2.9bn.
The carmaker said deliveries in the period rose 14 per cent to just under 2m units, outstripping the 8 per cent rise in the global market, boosted by strong growth in China as well as some western European markets, including Germany and France.
More than a quarter of vehicles sold in the first quarter were in China, where delivery volumes rose 20 per cent to 549,000 vehicles. Deliveries in North America rose 18 per cent, albeit from a relatively low base.
VW said its share of the global passenger car market rose from 11.5 per cent to 12 per cent. The carmaker’s Volkswagen, Audi and Skoda brands saw the strongest sales increases. The company is benefiting from using common platforms and components across many of its nine brands.
It repeated the expectation that the global economic recovery would weaken slightly this year and warned that high commodity prices and the disruption to the supply chain from the earthquake in Japan could hold back its own performance, although it expected to beat 2010 in terms of sales and operating profits.
Highlighting the group’s financial strength, VW lifted its net cash by €1bn over the quarter to €19.6bn, even after the €3.3bn acquisition of Porsche’s Austrian car dealership holding company, and an investment in a carbon fibre maker.
VW, which is looking to overtake Japan’s Toyota as the world’s biggest carmaker by sales in 2018, is still hoping to complete a merger with Porsche, the German sports carmaker, before the end of the year and is also aiming to enlarge its truckmaking unit by combining MAN with Sweden’s Scania. Both deals have encountered problems in recent months.
Volvo has raised its forecasts for the European and North American truck markets this year in a sign of confidence that economic recovery is picking up.
The Swedish truckmaker said the rebound in western markets had combined with surging growth in developing countries to increase orders 40 per cent in the first quarter, with operating profits and margins hitting record levels.
“Demand for trucks continued to improve across the board,” said Leif Johansson, chief executive. “Our mature markets are recovering, with sharp sales increase and favourable profitability in our operations in the emerging markets of Brazil, China and India.”
Volvo, the world’s number two truckmaker by sales after Daimler of Germany, suffered the worst downturn in its history after the global financial crisis but has bounced back strongly over the past year, helped by emerging market growth.
Recovery in Europe and North America, the company’s two biggest markets, has been slow and uneven but the pace has picked up this year, with European orders up 46 per cent year-on-year in the first quarter, while North American orders more than tripled.
Volvo said it expected 230,000-240,000 heavy trucks to be sold in both the European and North American markets this year, up from its previous estimate for 220,000.
Ford Motor‘s expanding line-up of small and more fuel-efficient vehicles helped boost first-quarter earnings to the highest level in 13 years, underlining Detroit’s improved ability to withstand rising petrol prices.
Earnings jumped 22 per cent to $2.55bn. Higher vehicle prices and lower discounts and other incentives contributed $900m to first-quarter earnings compared with a year earlier.
Alan Mulally, Ford’s chief executive, said while buyers favour smaller vehicles, many are opting for more luxurious and more profitable features. “This is a tremendous change in the automobile industry,” he said, pointing to the popularity of heated leather seats in the small Fiesta, one of Ford’s most popular new models.
Ford, Detroit’s number-two carmaker by revenue, generated $2.2bn in cash flow from operations during the quarter, and reduced its debt by $2.5bn to $14.6bn. Cash reserves stood at $21.3bn on March 31.
Ford’s operating margin rose to 7.7 per cent from 6.2 per cent a year earlier, despite rising raw material and other costs.
Ford was the only one of Detroit’s three carmakers to avoid a government bail-out in the 2008-09 recession.
Ford’s results do not reflect the impact of the Japan earthquake. Ford has announced temporary shutdowns of plants around the world, which are likely to affect production. However, CFO Lewis Booth said the shutdowns were unlikely to have a material impact on overall profitability.
While full-year operating profit and cash flow are expected to exceed 2010, Ford cautioned that further results “may not be as strong as the first quarter”.
It cited lower profits at Ford Credit, its financing arm, rising commodity prices and expanding investments, especially in emerging markets such as Russia which Mr Mulally predicted would be Europe’s biggest car market by 2015.
Operating profits in Europe for the quarter almost trebled, helped by new models.