As the crisis over national debt and financial stability in Europe continues to swirl, a ratings agency has said that European automakers are preparing for a slowdown in sales and that it believes a 2009-style production crash is ‘unlikely’.
Unlike the situation in the second half of 2008, early warning signs are clearly visible for manufacturers and they can prepare – and have prepared – for a potential slowdown in sales, says Fitch ratings. In addition, the ratings agency notes that European carmakers ‘enjoy a leaner cost structure, broader diversification and higher liquidity at this time than in 2008’.
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The note says that carmakers have learned the lessons from H208 when inventories were at a record level and led to a cash haemorrhage from working capital needs. They are now managing their working capital cycles much more efficiently and several groups have already pre-emptively taken measures to slow or cut production at an early stage and avoid further stockpiling, Fitch says.
“Drastic and sudden cuts in production leading to under-absorption of fixed costs are therefore unlikely,” according to the note.
The note goes on: “A structural difference from 2008-2009 is the leaner cost structure enjoyed by all manufacturers. Carmakers have spent the past two years saving costs, downsizing or cutting production capacity in Europe, working on more efficient processes and increasing the share of flexible staff. Temporary workers represent between 10% and 15% of car manufacturers’ total workforces, leading to an easier adjustment if necessary.
“In addition, geographic diversification is broader in 2011 than it was in 2008 and several groups, in particular Renault SA (‘BB+’/Stable) and PSA (‘BB+’/Positive/’B’), are now somewhat less dependent on western Europe, where Fitch sees the highest risk of a slowdown – or lack of recovery – in sales in Q411 and 2012.
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By GlobalData“Liquidity across the sector is also substantially higher at present than it was at end-June 2008 at the onset of the sharp decline in new vehicle sales. Manufacturers’ cash and cash equivalent were 50% to 70% higher at end-June 2011 than at end-June 2008 (except for Fiat Spa (‘BB+’/Rating Watch Negative/’B’), excluding Chrysler, for which gross liquidity was approximately three times higher). In addition, virtually all manufacturers have fulfilled their refinancing needs for the remainder of 2011 and 2012. Even financial services operations could operate for six to 12 months without any access to capital markets, according to manufacturers.”
