Stop and Go in 2003 for German Carmakers
October 22, 2003
With operating profit plummeting 19 percent and sales dropping five percent in the third quarter, things look pretty grim for German-American carmaker DaimlerChrysler. After posting results including a massive net €1.65 billion ($1.9 billion) loss on Tuesday, the world’s fifth largest auto company punished with a sinking share price and downgrades galore.
As equity analysts ratcheted down their stock price targets for the year, rating agency Standard & Poor’s cut DaimlerChrysler’s credit rating from BBB+ to BBB with a negative outlook, citing how the company continues to be hobbled by its troubled American unit Chrysler.
Although the firm’s German Mercedes luxury brand continues to sell well, most analysts believe DaimlerChrysler can only flourish if it manages to turn things around at the American unit. DaimlerChrysler actually managed to squeeze out a tiny profit at Chrysler in the third quarter by cutting costs, but unfortunately the U.S. market remains a vicious place with rebates and other sales incentives.
The Stuttgart-based Daimler-Benz has been plagued with problems at Chrysler ever since it took over America’s number three carmaker in 1998. The unit’s market share in the United States has dropped from around 16 percent to an estimated 12 percent for this year.
“We interpret management’s most recent words and deeds as an indication that a successful revival of Chrysler will be postponed ever further into the future,” analysts from the Landesbank Baden-Württemberg wrote in a report.
Mixed bag
But DaimlerChrysler’s woes aside, this year is shaping up to be a mixed bag for the rest of the German car industry.
Germany’s largest automaker Volkswagen is expecting 2003 results to be considerably lower than the €1.8 billion in pre-tax profit it earned last year. The weak economy in Europe and America and the strong euro all helped drag down results for the first half by nearly 58 percent. It is also slashing 4,000 jobs in Brazil, as demand in Latin America stagnates.
But with the new Golf V hitting the market last Friday, VW is hoping for a late fourth-quarter surge in sales this year. Volkswagen has already unloaded 33,700 of the new Golf in pre-sales and the company hopes to flog around another 100,000 by the end of the year. In order to meet demand, the company is upping production quotas at its flagship production facilities in Wolfsburg.
German carmaker Opel, owned by U.S. giant General Motors, is hoping it can overtake VW for new car registrations in Western Europe this year. In the first nine months of 2003, Opel managed to post 1.03 million new registrations. In comparison, the company’s arch-rival Volkswagen had 1.09 million in registrations for the same period.
Investment in the Astra, the company’s competition for the new Golf, reportedly contributed to the €90 million loss in the third quarter for Opel. But Opel still hopes to narrow its losses for all of 2003 compared to last year’s €227 million loss.
Asian expansion
But not all of Germany’s carmakers are focusing on Europe or America in 2003. Bavaria’s upscale BMW is using this year to shift its Chinese auto production into high gear. Over the weekend, the company has begun offering the first domestically produced autos in China.
The German-Chinese joint venture sells the BMW 325i model for €20,000 less than what the import model costs in China. The lower prices should help spur demand for the estimated 30,000 units BMW plans to roll off the factory lines each year.
On Wednesday, BMW board member Helmut Panke in Tokyo said the company planned on doubling its sales throughout Asia in five years.