Daimler and Volkswagen, the next victims of Europe market slowdown

Monday 31 October 2011, 14:52 PM by

Daimler AG and Volkswagen AG recently joined the league of discontented car makers, therefore confirming the discouraging forecasts for demand yet again. The frantic manufacturers have been continuously struggling in the region that is bearing the brunt of government debt, giving a worrisome outlook to the Europe car industry.

The abysmal news shared by the leaders has escalated the seriousness of the recent unhealthy signals given by other car makers, which had been witnessing satisfactory growth in the markets, but are now floating in troubled waters.

Daimler said that the third-quarter operating profit suffered a nosedive as premium car sales were hit by the economic slowdown, with sales at Mercedes-Benz descended by 2 per cent in Western Europe. Moreover, the sales performance in Germany, Europe's biggest car market, has also been facing unbidden issues.

"In western Europe there is little sign of any significant growth impetus," Daimler said, adding that the company expected the region's markets to compress, though slightly, in the overall perspective.

Daimler's announcements followed the Ford Motor Co report, which depicted a drop in its quarterly profit, owing partly to the losses in Europe.

Car sales growth has been negativity in Europe, while the pace of growth in China, in recent quarters, has slowed down after the industry recuperated from the 2008-09 crisis.

"At the beginning of the fourth quarter of 2011 the outlook for the world economy is distinctly less favourable than just a few months ago," Daimler said.

"The strained debt situation in certain euro zone countries and the end of subsidy programs will have a negative impact on demand for new vehicles in many western European countries," Volkswagen said.

Volkswagen has foreseen a large-scale rise in revenue and operating profit this year, but cautioned against volatile interest rates and currency fluctuations, in addition to margins being hurt by commodity prices.

It reported a quarterly operating profit of 9 billion euros due to the double-digit sales growth and a further push from derivative financial instruments used during the merger with Porsche.

Analyst Max Warburton at brokerage Bernstein said, “VW's results showed it had overcome traditional seasonality which makes the third quarter the toughest for car makers.”

"There's no apparent seasonality at VW now -- it's just consistently very profitable," "Clearly 2012 will be tougher ... but it seems reasonable to expect the company to remain profitable ... assuming no complete economic meltdown," he further added.

On the contrary, other than Europe, Fiat-Chrysler's third-quarter trading profit surpasses the foreseen figure to earn 851 million euros, with U.S. Auto maker Chrysler attributed to about two-third sales.

Fiat Group Automobiles, excluding the luxury Ferrari and Maserati brands, however, reported a fall, tumbling to 128 million euros compared with 187 million euros in the second quarter.

Carlos Ghosn, Chief Executive Officer of Renault and partner Nissan Motor Co confirmed a ascending trend, contrary to its competitors.

On the other hand, truck manufacturers, too, have been facing lower demand, in a sector closely linked to international trade and the health of the wider economy.

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