Newsflash    28-10-2014 09:00

+++ Automakers in BRAZIL are facing the sharpest slowdown since 1999 and it could be a year or more before things turn the corner. It is tough to find a sunny 2015 forecast at the Sao Paulo Auto Show this week, where companies accustomed to a market growing by double digits are now considering 3 straight years of declining sales. "It looks like the market is in for a difficult time until 2016", said Koji Kondo, Toyota's chief executive in Brazil, citing labor costs, rising taxes and infrastructure bottlenecks as a persistent problem. "It's hard for Brazil's economic conditions to recover in the short term". Sales of cars and light trucks have fallen 9 percent so far this year compared to the first 9 months of 2013, as demand dries up due to tighter credit and shaky consumer confidence. Local units of global carmakers have gone from cash cows to serious headaches, with new factories creating a glut of inventory. Brazil's slump combined with an erratic Argentine economy could leave as much as 50 percent of the industry's capacity in South America unused next year, said Rogelio Goldfarb, Ford's head of corporate affairs in the region. The auto industry, which contributes a quarter of Brazil's industrial production, has become emblematic of the troubles facing re-elected President Dilma Rousseff in her new term. The country's car market was still booming when Rousseff took office in 2011, doubling in a decade to become the world's fourth largest. But soaring costs and more competitive imports meant trouble for local auto factories and other manufacturers. Rousseff's reaction was a series of targeted tax breaks, import barriers and credit subsidies for carmakers and other favored industries. The measures boosted sales temporarily but did little for Brazil's competitiveness. Now it is proving tough to wean companies off what were meant as emergency measures. Executives argued for yet another extension of an industrial tax break meant to last 3 months in 2012, which has since drained billions from a strained federal budget. A plan to finish phasing out the so-called IPI tax break was last postponed to the end of December. "The current IPI is now part of the industry. Consumers are used to it. Whatever the changes, you can't raise the tax", said Jaime Ardila, the head of General Motors in South America, who said he hopes for a slight sales rebound in 2015. Losing the tax incentives would scrap a gentlemen's agreement between the government and automakers, which have been trimming payrolls with furloughs and voluntary buyouts but promised to stop short of widespread layoffs for now. Without the tax break next year, automakers from Ford to Nissan forecast sales in line with 2014, which is likely to be the weakest volume in 5 years. Others are only slightly more optimistic, such as Thomas Schmall, Volkswagen's chief executive in Brazil, who said the market could grow as much as 4 percent next year. Other players, such as luxury brands or individual carmakers unveiling new models, are aiming for even healthier growth, but for now it looks like a zero-sum game. "Most likely 2016 is when we expect the market will return to growth", said Honda's chief executive for South America, Issao Mizoguchi. "2015 is the year to take some tough medicine. If things are stable, that would be good". +++ Fiat Chrysler Automobiles (FCA) said it will spin off its luxury sports car maker FERRARI and list the shares as part of a bigger scheme which includes a $2.5 billion convertible bond issue to help fund its ambitious business plan. The newly created FCA, which moved its primary share listing to New York earlier this month, wants to invest 48 billion euros over the next 5 years to turn Jeep, Maserati and Alfa Romeo into global brands and rival Volkswagen and BMW by strengthening its position in the fast-growing and high-margin market for premium cars. As part of the capital-boosting measures FCA will also sell by the end of 2014 up to 100 million of its shares (including treasury shares and stock that will be issued to offset a share buyback from Fiat investors who opposed the recent merger into FCA) and repay ahead of maturity some Chrysler bonds to remove restrictions on its access to the cash of the U.S. unit, whose buyout it completed earlier this year. "Today is a big clean-up day", FCA's chief executive Sergio Marchionne said, adding that together, all the measures would inject a total of 4 billion euros into the company and help it deal with any eventual contraction in car sales volumes. "It gives us all the comfort to go and execute the plan up to 2018, it is designed to deal with the worst-case scenario", he said. Under the plan FCA said it will list a 10 percent stake in Ferrari in the United States and possibly in Europe through a public offer, hoping to complete the spin-off next year. The remaining 80 percent stake held by Fiat Chrysler will be distributed to FCA shareholders, including Fiat\'s founding Agnelli family which controls 30 percent of FCA. The other 10 percent of Ferrari is owned by Piero Ferrari, vice chairman and son of the founder Enzo, who died in 1988. FCA also plans to complete by the end of 2014 the sale of the $2.5 billion bond which later converts into FCA shares, factoring in the prospect of the Ferrari spin-off. "It is expected that investors participating in the offering, subject to completion of the spin-off of Ferrari being announced today, will be entitled to participate in the spin-off and receive shares of Ferrari pursuant to customary provisions adjusting the conversion terms", FCA said. Analysts had questioned FCA's ability to fund its plan to boost sales by 60 percent to 7 million cars and raise net profit five-fold by 2018, given the currently tough market conditions. "They seem to have sorted out their capital worries in one go", said Roberto Lottici, a fund manager at Ifigest. After ruling out a Ferrari listing for years, Marchionne had hinted at a possible change of heart in a Reuters interview this month, when he described Ferrari as a "phenomenal carrot" for potential U.S. investors. The initial response to FCA's Wall Street listing has been muted, with the stock still more heavily traded in Milan. Ferrari could have a value of between 4.4 and 5.8 billion euros depending on whether it carries any debt or cash, according to brokers. Marchionne only said that all would be "pleasantly surprised" once it is floated. The move comes just weeks after Marchionne took over at Ferrari, replacing long-serving chairman Luca di Montezemolo after they clashed over strategy and the Formula One racing team's poor results. Marchionne said he would remain Ferrari's chairman after the spin-off and reiterated that Ferrari sales, capped at around 7,000 vehicles a year, would only be raised significantly if there was sufficient demand from the super rich to not jeopardize the brand's exclusive status. The Agnelli's holding company Exor has already said it will invest 600 million euros in the mandatory convertible. "It looks to me like they've packaged the Ferrari deal as a pill to help sell the convertible (bond) after results that were far from overwhelming", Lottici added. Earlier on Wednesday, FCA reported a 7 percent rise in third-quarter operating profit to 926 million euros, with revenues up 14 percent at 23.6 billion euros. Analysts have long said FCA, with net industrial debt of 11.4 billion euros at the end of September, needed to raise capital to strengthen its balance sheet, especially as it is battling losses in Europe and weakening Latin American markets. But some observers questioned the strategic logic of a Ferrari spin-off, at a time when other luxury carmakers have been increasing their ties with volume brands to spread the costs of meeting ever-tightening emission standards. "We don’t see Ferrari as a sustainable standalone business”, said George Galliers, a London-based analyst with ISI Group. "Porsche and VW’s rationale to join forces should serve as a good reminder, not to mention the challenges presently facing Aston Martin", Galliers said., referring to the British sports car maker that has been struggling to fund new model investments without a major industry backer. A 5 billion euro enterprise value for Ferrari would price it at nearly 14 times earnings before interest, tax, depreciation and amortization (EBITDA), a Paris-based trader said, putting it well above high-end auto firms and top luxury goods stocks. "Investors’ appetite for such a high multiple is yet to be tested", he said. "And then, why sell the crown jewels?". +++ Succession is not an imminent topic at the GERMAN carmanufacturers Daimler or Volkswagen, the chief executives of both carmakers said, adding that any potential candidates would most likely come from within their respective companies. Daimler chief Dieter Zetsche and Martin Winterkorn, who heads up Volkswagen, were both asked whether succession was imminent and whether a suitable candidate had emerged. Zetsche said it was generally unwise to speculate in public about who would become the next chief executive, because premature exposure may prove disruptive to a smooth succession process. "If somebody were to emerge into the open as crown prince, he would be shot down the next day", Zetsche said, without elaborating further. Daimler has a number of internal candidates who have the opportunity to prove themselves as being worthy, Zetsche added somewhat cryptically. External candidates could bring a fresh point of view, but they tend to emerge at companies that are in trouble. "If you are doing well, like all the 3 German automakers are, it is more likely that a successor will come from within", Zetsche added. Zetsche, who is 61, has a contract that runs until 2016. Asked whether his replacement had already been born, Volkswagen's Winterkorn said, "He has definitely been born, but I don't know what his name is". The 67-year-old Volkswagen chief, whose contract also runs out in 2016, was also asked whether he has one or several candidates in mind to follow in his footsteps, to which he said, "It would be bad if that were not the case". Winterkorn further said that he felt it would be an advantage if a successor came from within the company, because that person would know the processes and key people. "An outsider would find it difficult". Winterkorn said. +++ HYUNDAI will avoid putting all of its 'green' eggs in one basket, with plans to offer a dedicated hybrid model alongside other electrified alternatives. The company has heavily promoted its fuel-cell technology as the future of electric vehicles, suggesting battery-only EVs and traditional hybrids were low on its priority list, however CEO Choong Ho Kim has confirmed that all forms will be produced in the near future. "We will take the lead in the future by raising the competitiveness of our environment-friendly cars like hybrid-only cars, plug-in hybrid cars and fuel cell hydrogen cars", he said. The strategy will center around a dedicated hybrid, which will be squarely aimed at the popular Toyota Prius. An all-electric model, scheduled to arrive sometime in 2016, will engage a separate niche as a rival to the Nissan Leaf, Ford Focus Electric and Volkswagen e-Golf. The Korean automaker will also continue to offer hybrid adaptations of its core gasoline-powered models, such as the Sonata, while it continues to develop fuel-cell technology and other electric powertrains. +++ MAZDA will introduce a coupe version of the '6' in time for the 2016 model year. The coupe will look similar to the sedan from the tip of the front bumper to the B-pillar, though it is expected to wear a noticeably sportier design. Beyond that, it will feature a pair of frameless doors, a sloping roofline and a revised rear end that could borrow styling cues from the Shinari concept that was introduced at the 2010 Paris Motor Show. Inside, expect the first-ever 6 coupe to feature a better-finished interior than its 4-door sibling. It will offer space for up to 4 passengers in a spacious, sport-inspired atmosphere. The Mazda6 Coupe will initially launch with the same engine that currently powers the sedan. Power will be sent to the front wheels via either a 6-speed automatic transmission or an enthusiast-friendly 6-speed manual unit. A high-performance MazdaSpeed-tuned MPS model is likely to join the lineup later in the production run. +++ RENAULT 's third-quarter revenue rose 6.7 percent as price increases helped overcome weaker emerging market sales, the French carmaker said, upgrading its European auto market growth forecast for the full year. Revenue rose to 8.53 billion euros in July-September from 8 billion a year earlier, Renault said in a statement, even as deliveries declined slightly to 612,934 vehicles globally from 614,888. The gains in Europe, powered by new model launches such as the Captur, "offset declines in Renault group's main emerging markets", the company said. Renault's low-cost cars and emerging market presence helped it ride out a 6-year European auto slump that ended last year. But the company is now grappling with weakening currencies and demand in many of the same overseas markets. Renault raised its European auto market growth forecast to 5 percent for 2014 from the previous 3-4 percent estimate, while warning that emerging markets would remain "adverse and volatile" for the rest of the year. The carmaker reiterated its full-year sales and earnings targets including a gain in global registrations and operating profit, backed by positive operating cash flow at the core manufacturing division. "This is a good result, and Renault is indeed on track to reach its full-year targets despite tough Russian and Latin American markets", Arndt Ellinghorst, a London-based ISI Group analyst, said. "Renault has the strongest product momentum of any EU mass maker and the average age of its fleet is declining", he said. Supported by new models, price increases accounted for a 1.1 percent gain in revenue, Renault said, countered by a 1.3 percent negative effect from falling emerging market currencies such as the Russian rouble, Brazilian real and Argentine peso. Despite the almost-flat registrations, sales volumes made a positive contribution to revenue by comparison with the year earlier period, when independent dealers sold more vehicles from their existing stocks. +++ TESLA could be building 500,000 EVs a year, according to a report produced by automotive analysts at International Strategy and Investment. ISI has told investors that Tesla has a major advantage over the competition in that it will not face significant rising costs as global CO2 emissions regulations become ever more onerous. The business case for a premium electric car also seems to be compelling, according to ISI. While Land Rover and Porsche are realising profit margins of 15-18 percent (the highest in the mainstream car industry) Tesla could be in line for margins of 25 percent, rising to a possible 30 percent by 2020. ISI has told investors that it believes Tesla to have a “tangible lead” in both product and technology and that battery electric vehicles (BEVs) are likely to be the “optimum solution as original equipment manufacturers pursue tailpipe emission-free cars” rather than cars with hydrogen fuel cells. ISI said: “Tesla has a market-leading product for which there is no obvious competition and has already created substantial brand equity through product and innovation. Global legislation, namely emissions regulations, is a tailwind for Tesla yet a headwind for the premium competition”. Tesla’s estimations suggest that the cost of batteries should fall by about 30 per cent, with ISI estimating a 13 per cent drop in the factory cost of the Model S by 2020. Mainstream car makers, by contrast, will be faced with rising costs as they switch to hybrid transmissions to meet CO2 regulations. Tesla is also poised for greater success in China, ISI has asserted, not only because premium car sales in the country are booming but also because the Chinese authorities are pushing for a much greater uptake of BEVs. Estimates quoted by ISI suggest that China wants as many as 5 million BEVs on its roads by 2020, along with some 4.5 million charging points. On the open market, ISI said Tesla is attracting buyers from Mercedes, Lexus and BMW as well as pulling in significant numbers of Toyota Prius customers looking for a premium upgrade. The nature of Tesla’s increasing competitiveness in the marketplace became clear last week when Daimler sold its 4 percent stake in Tesla, raising more than 500 million euro. Analysts suggest that the move shows how Tesla has now become a serious rival for premium luxury car makers, rather than a technical partner. +++

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