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November 7, 2008

Car Market Crash

FinanceFord Motor Co., General Motors Corp., and Chrysler LLC are all queuing up for cash as sales demand has dropped to record lows amid the global recession climate change… The carmakers are seeking $50 billion in federal loans to help them go through the worst auto market slump in 25 years.

Ford has reported a Q3 loss of $1.31 ex items, worse than analyst expectations for a loss of $0.93 and has also stated it is seeking government loans in Europe.

For the Auto operations, pre tax loss of $2,906mn vs a pre tax loss of $362mn in Q3 07.

  • North America pre tax loss of $2.6bn – looks a bit better than expected. Unfavourable volume and mix, unfavourable net pricing.
  • South America pre tax profit of $480mn – looks a bit better than expected
  • Europe: pre tax profit of $69mn – looks worse than expected. Mainly due to negative cost changes and FX, but net pricing was better.
  • Asia Pac: pre tax profit of $4mn – looks a bit worse than expected
  • PAG (Volvo): pre tax loss of $458mn due to unfavourable volume and mix – looks worse than expected
  • Pre tax loss of $411mn

Automotive gross cash position of $18.9bn (down from $26.6bn at the end of Q2) and available credit lines of $10.7bn. The decline in cash reflects automotive pre tax operating losses, changes in working capital as well as upfront subvention payments to Ford Credit.

Ford states that it is working on actions to improve Automotive cash by $14mn to $17bn through 2010 through head count reduction, reducing bonuses, reducing capex, improving working capital, through a return of capital from Ford Credit to FMC (through a smaller balance sheet at Ford Credit and a focus on core Ford brands), divesting non core assets, and reducing other costs such as IT, engineering and advertising costs.

The troubled carmaker stated that its actions are based on the premise that the industry downturn will be deeper, broader and longer than previously assumed. States that it expects industry volumes to decline in 2009 versus 2008 levels. They will also try to strengthen the balance sheet and will accelerate new product development.

Porsche’s profit on the other hand climbed a record 51% despite the sever drop in car demand since the credit crunch crisis rise. They also expect sales to fall in the following quarters amid a “serious setback” in the auto industry. Net income increased in the 12 months ending on the 31st of July to $8.16 billion (6.39 billion euros), a fifty percent rise within a year.

The main contributor that drove earnings to new sky highs is the sports carmaker’s Volkswagen AG holding which value rose substantially over the past period due to gains of about seven billion after a successful hedging investment strategy.

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