GM is to fund its pension fund deficit by raising $10 billion in the bond market by selling debt, replacing short term pensions obligations with long-term debt payments. Some analysts are sceptical about the move, though GM shares rose 2.6 per cent when the news was announced. Last year, GM’s US pension fund was underfunded to the tune of $19.3 billion.
Market analysts MorganStanley have downgraded Michelin from “Overweight” to “Equal Weight” status. This is despite the fact that Michelin has outperformed the Autos industry by 15 per cent since February and is in response to an expected cyclical slowdown in the industry. Michelin itself has said that it expects a marked slowdown in the European market, with only winter tyres showing increased volumes, and a continued fall in the North American market.
It is better to be a tyre manufacturer in Western Europe rather than the USA, say analysts from the Deutsche Bank. The main reason is that raw material prices, billed in US$, have risen 20 per cent in Dollar terms, but only 3 or 4 per cent in Euro terms. Another advantage is in the performance of the respective tyre markets, with the European replacement truck tyre market in the first four months up 5 per cent (US market up 2 per cent) and the car tyre market in Europe rising 8 per cent, against a 5 per cent decline in the USA.
DaimlerChrysler (DCX) management has said that the company expects the Chrysler division to lose 1 billion Euros in the second quarter – industry analysts had been predicting a 200 million Euros profit. Lower revenues from vehicle sales and continuing high incentives in the US market were cited as two of the main reasons. Analysts have changed their full-year forecast for Chrysler from a 700 million Euros profit to a 336 million Euros loss.
Continental has turned in a good performance in the first quarter, despite a sluggish automotive sector market. Sales rose 3.2 per cent over 1Q 2002 to 2.82 billion Euros (2.73 bn). If these are adjusted for currency fluctuations, the increase was 9.7 per cent. Net profit was up 28 per cent to 87 million Euros, giving a margin of 6.5 per cent. Passenger tyre revenue was up, as were sales at Continental Automotive Systems and ContiTech, but turnover on truck tyres was down.
Analysts MorganStanley have downgraded Volkswagen from “Equal weight” to “Underweight”, expecting the company to underperform the industry in the near future. Reduced earnings, exchange rate fluctuations, development costs and launch/marketing costs are all factors influencing this decision.
Market analysts UBS Warburg have reduced their ratings on both Ford and GM. Ford moves to “Reduce2” from “Neutral 2” and GM goes from “Buy 2” to “Neutral 2”. The move comes despite a good 1Q performance from Ford, but UBSW thinks that the company will still struggle versus the competition. On the other hand, a stronger Ford means the price war will last longer, adversely affecting GM, hence their downgrade.
Industry analysts Goldman Sachs have upgraded Ford to In-Line and downgraded GM to Underperform. This follows better-than expected first quarter profits from Ford – net income was $896 million, compared to a loss of $1.1 billion in 1Q last year. GM has warned that it might not meet its profit target this year.
Yesterday was the final day for Goodyear to report its 2002 financial results or apply for a two-week extension. The company has said that it will not release financial details until it has finalised discussions with banks concerning restructuring, refinancing and securing loans, as “both subjects are related” said a spokesman. Goodyear denies it is facing a liquidity crisis, as some analysts have said, and the company has secured a new credit line of $1.3 billion.
Auropolis analysts expect vehicle production in North America to fall by 10 per cent in 2003 even is a war is avoided or short. The drop will continue even if current price-cutting is extended. Despite action to maintain volumes US sales fell for eight months in 2002 and showed lower year-on-year figures for the second straight year in a row. In a market characterised by fears over some carmakers’ financial foundations, waning consumer confidence and a market which has been almost saturated with overly-cheap cars for three years, the prospects are poor. Past cycles in the US show, that when it comes, the market normally corrects sharply and quickly. Swings in sales of more than 20% from the highest point to the lowest over an 18 month period are typical says the firm. The only reason that the situation might be better this time is because Mexico’s market should grow in 2004 thanks to price cuts anticipated there. Assuming a normal pace of recovery, Autopolis say the North American market will take until 2009 to have returned to its peak level again.
Financial analysts MorganStanley have upgraded Michelin from Equal Weight to Overweight, which means that the stock’s total return is expected to exceed the average of those companies reported on in the same industry, over the next 12-18 months. Michelin recently published an encouraging set of figures for 2002 and the analysts believe that the shares, currently trading near an eight-year low of 24 Euros, are undervalued.
Michelin is expected to announce a small drop in sales to 15.54 billion Euro from 15.75 billion Euro. Analysts say this is likely to be due to the weak dollar. They also suggest that Michelin will increase prices to meet growing costs of oil-based raw materials. An announcement from Michelin is expected later today after the close of the stock market. Michelin’s full results are expected in two week’s time. The company’s share prices were pressured last Friday when Standard and Poor’s put the group on negative credit watch over unfunded pension liabilities. However they were given a 4.6 lift on Tuesday by good news from the auto sector suggesting a revival was under way.
Concerns over liquidity, increases in oil prices and declining market shares are making analysts cautious over Goodyear’s attempts to turn the group around. Analyst Lache, from DB Global Equities New York, is expecting Goodyear to come up with an aggressive restructuring plan in March, involving moving production to lower cost areas with subsequent plant closures and giving up loss-making OE contracts. Investors may regard such plans with a pinch of salt, as Goodyear has spent $640 m so far in unsuccessful restructuring efforts. Lache estimates that Goodyear will have to reduce costs by up to another $850 m in order to be competitive
Fiat has warned that its auto division will report a loss of around 187 million Euros for the fourth quarter. Previously the company had predicted a break-even for 4Q, while analysts were forecasting a loss of 35 million Euros. If the estimate is correct, Fiat Auto’s loss for the year 2002 will be 1.4 billion Euros. The company has sold assets in an attempt to improve its financial position, including its 5 per cent stake in General Motors, bought by Merrill Lynch for US$ 1.16 billion.
Ipsos has carried out a study of Michelin’s financial image, asking 251 European financial analysts and 517 French people owning securities. They rated the company under a number of headings and Michelin’s overall performance was generally very good. It scored particularly well in the sections “In financial terms, its forecasts always match its achievements” and “It is particularly capable of reacting to the economic situation”. 80 per cent of the analysts and 56 per cent of the private investors said that they were “confident about the share’s performance” over the next six months.
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