TABLE OF CONTENTS
Car Sales Accelerating in China
Fiat to Increase Stake in Chrysler
Peugeot Upgrades Sales Forecast
Ford Sales and Profit Up, Company Paying Down Debt
Ford to Reduce Stake in Mazda to Under 3%
Ford Sells Volvo to Chinese Carmaker Geely for $1.5 billion
For the past 18 months, spurred in part by government stimulus measures including tax breaks, mainland auto sales have consistently outperformed expectations, making China the world’s largest carmaker in 2009, several years earlier than expected, Financial times reports.
Though Beijing has vowed to change the structure of the Chinese economy to boost the share of domestic consumption, and car sales are a barometer for that plan’s progress, car industry analysts in China agree that government stimulus measures in China are marginal.
China’s car market has grown at a compound annual growth rate of more than 30 per cent for the past decade, says Bill Russo of Synergistics, a Beijing auto consultancy, and former head of Chrysler in China. Last year’s 40 per cent-plus growth was accelerated by stimulus measures, “but this is by no means the fundamental driver behind the growth over the past decade”, he says.
Ivo Naumann, head of Alix Partners Shanghai office, says car penetration in China is still very low, even compared with emerging markets such as Brazil and Russia.
China’s light vehicle penetration is only 30 per 1,000 people compared with 206 per 1,000 in Russia and 559 per 1,000 in Italy, he says. Further car industry growth will be driven by the fact that more and more households are passing the minimum income threshold to afford a car, with this number expected to double in the next five years from 35m to 70m households.
Fiat will be ready to increase its 20 per cent stake in Chrysler to 35 per cent by the end of 2011, according to Sergio Marchionne, the carmaker’s chief executive, according to an article by the Financial Times.
The launch of Fiat’s 500 model in North America triggers a stakebuilding condition
“In 2011 we should be able to get to the 35 per cent number, barring unforeseen circumstances,” said Mr Marchionne when asked by financial analysts about Fiat’s plans to increase its stake in Chrysler.
When Fiat formed its alliance with Chrysler last year, the US Treasury – which rescued the company from collapse – said the Italian company could increase its stake in 5 per cent increments after providing its new partner with fuel-efficient engines, a 40 mile-per-gallon car, and access to its international distribution network.
Mr Marchionne said that the launch of Fiat’s 500 model in North America, which will be sold by Chrysler dealers, would trigger the first condition by the end of this year or the first quarter of 2011, allowing it to acquire the first additional 5 per cent stake in its US partner.
He said that Fiat would be ready to meet the second condition by the end of next year and that the company was already “technically in compliance” with the third one, but that it was “fraught with difficulties” because of rules and regulations governing Fiat’s dealer distribution network in Brazil.
However, he added, Fiat was working with the US Treasury on a solution and hoped that the issue would be resolved by the end of this year.
Mr Marchionne did not rule out exercising an option in future to acquire another 16 per cent of Chrysler and become its majority owner, which it cannot do until the company repays its US and Canadian bail-out loans. However, he added: “I can tell you right now that I am not at that stage.”
Carmaker PSA Peugeot Citroen upgraded its 2010 earnings forecast, saying it expected strong market growth in China and Latin America this year and a smaller than expected drop in Europe.
The French producer, Europe’s second-largest carmaker after Volkswagen, announced recently that it expected to break even in the second half of this year, and should report recurring operating income for the year exceeding €1.5bn ($2.1bn). In July this year the company said it only aimed to reach the €1.5bn target.
Peugeot reported third-quarter group sales of €13bn, 10.3 per cent higher than a year ago. It said that revenues in its core automotive division were €9.5bn, a 2.3 per cent rise on the third quarter of 2009.
Peugeot said it expected Europe’s car market, which is adapting to the withdrawal of scrappage schemes that stimulated sales last year, to contract by 5 per cent this year, compared to the 7 per cent drop it had forecast previously.
The group said it delivered a “resilient” performance on its home continent in the third quarter, with registrations down 10 per cent, compared to the market’s overall 11.4 per cent decline.
Its sales grew faster than the market in China, where the group’s sales were 24 per cent higher than a year ago compared with the market’s overall 18 per cent growth – and in Latin America its sales grew by 26 per cent on a market that grew by 12 per cent.
In Russia, where the company recently opened a plant shared with Japan’s Mitsubishi, its registrations were 83 per cent higher than a year ago.
Peugeot said the Chinese market should grow by nearly 20 per cent this year, and Latin America by nearly 10 per cent.
Ford Motor Company reported healthy profit gains in the third quarter and announced that it was paying down debt at a faster clip than earlier planned.
The U.S.-based auto company reported net earnings of $1.7 billion, or 43 cents per share for the third quarter ending September 10, compared with last year's profits of 29 cents per share.
Revenue declined $1.3 billion year over year to $29 billion, reflecting the sale of the company's Volvo brand to Chinese carmaker Geely in August for $1.5 billion.
The company says it is on track to achieve 15.9% market share in the U.S. this year, up from 14.6% last year following the bankruptcies and reorganizations of General Motors and Chrysler, the two other major American auto makers.
Ford reported profits in almost every global market this quarter. South America produced a pre-tax operating profit of $241 million, compared with $247 million last year. Emerging markets reflected sales growth of 28 % in the Asia Pacific Africa region, leading to pre-tax operating profits of $30 million, compared with $22 million last year. Ford North America reported third quarter pre-tax operating profit of $1.6 billion, a $1.3 billion improvement from last year.
The company announced it would pay down its revolving credit line by $2 billion this year, and prepay the remaining $3.6 billion of debt owed to the VEBA retiree health care trust. As of Sept. 30, Ford’s total automotive debt was $26.4 billion.
Ford expects all of its automotive operations to be profitable in 2011.
Ford is preparing to sell most of its remaining interest in Japan’s Mazda in a move that would all but end the carmakers’ 31-year capital alliance, the Financial Times reports.
Ford wants to reduce its 11 per cent stake in Mazda to less than 3 per cent, according to people familiar with the matter. The total stake would be worth about $372m at the current market price. The US carmaker controlled 33 per cent of Mazda as recently as 2008 until collapsing motor industry sales forced it to sell assets to raise cash.
The two carmakers have been partners since 1979 with Ford relying on Mazda to develop small, fuel-efficient cars and Mazda piggybacking on Ford’s larger sales to fund research and development.
Ford’s decision to sever capital ties could make it more difficult for Mazda to underwrite expensive new investments. Mazda produced fewer than 1m vehicles last year.
In addition to co-operating on vehicle development, the two carmakers jointly operate factories in the US and Thailand, and are partners in a three-way joint venture with Chang’an Automobile in China.
Mazda exports about 80 per cent of its vehicles from Japan and as a result it has suffered more sharply from the recent surge in the value of the yen.
Ford has been negotiating to sell the Mazda shares to a group of Japanese investors led by Sumitomo Mitsui Bank, Mazda’s main creditor. Masayuki Oku, Sumitomo Mitsui’s chairman, recently was quoted by news agencies as saying he expected the bank to become Mazda’s largest shareholder by the end of this year.
The move will mark the US carmaker’s disposal of the last overseas brand in its portfolio. Since becoming Ford’s chief executive in 2006, Alan Mulally has transformed the company from what he has called a “house of brands” to one focused on making its core brand’s operations work more efficiently around the world.
In August, Ford closed a deal to sell its Swedish Volvo brand to China’s Zhejiang Geely for $1.5bn. In June, it decided to axe its slow-selling Mercury brand in the US, focusing instead on its larger Lincoln premium franchise.
Ford’s focus on its “Blue Oval” nameplate appears to be paying off. It is close to unseating General Motors as the largest carmaker in the US, and gaining market share from competitors in many emerging markets.
In March, Mazda struck a deal with Toyota to license elements of the larger Japanese carmaker’s petrol-electric hybrid drive system, rather than share similar technology developed by Ford.
Ford completed a $1.5 billion deal to unload Volvo to China's Geely, signaling an end of an era and China's biggest acquisition of a foreign car maker.
Despite the Swedish car maker's sterling record of safety and reliability, restoring Volvo to long-term profits will be Geely's greatest challenge. Sales of 334,000 Volvos brought in $12.4 billion last year, but the automaker lost $653 million.
The last time Volvo made an annual profit was in 2005. Ford paid $6.5 billion for Volvo in 1999.
Geely's plan includes using the Swedish nameplate to produce luxury brands in China, which surpassed the U.S. last year to become the world's biggest auto market. Operations are set to remain in Europe.
Getting rid of Volvo completes Ford CEO Alan Mulally's strategy of exiting European luxury lines to focus on its namesake brand.
Ford sold Aston Martin to a group of investors led by former U.K. race car champion David Richards for an undisclosed sum in 2007, followed by Jaguar and Land Rover to Tata Motors of India for $2.4 billion a year later.
Ford will continue to supply powertrains, stampings and some vehicle components to Volvo. It has also agreed to provide engineering and technology support, and access to tooling for common components.
Volvo's unions opposed the deal throughout much of the process over concerns that their jobs would be moved to China, but gradually were won over by Geely's promises to keep the brand separate.
The companies also announced that Stefan Jacoby, 52, a former North American exec of Volkswagen, has been named Volvo's new CEO. Former Volvo CEO Hans-Olov Olsson was also earlier named vice chairman, having helped to shepherd the deal while working at investment advisory firm Rothschild.