Red ink across Europe

  18 February 2013

Here at Auto Retail Network we try to avoid commenting on car manufacturing. Indeed, I spent quite a lot of time trying to explain to my fellow journalists that making cars and selling cars are two, quite distinct, sides of the same industry.

Having said that, it would be hard to ignore the flood of car manufacturer financial results that have been issued this week – and their likely impact on auto retailing.

The shock-horror headline of the week was PSA Peugeot-Citroen’s full-year loss of €5bn, largely as a result of a massive €3.9bn of one-off charges. Even so, the €1.5bn operating loss for the car division sounds scary enough.

On the face of it Renault’s figures looked better with a net income of €1.7m, but much of that came from a one-off sale of shares in Volvo. Reading between the lines (and it’s quite well hidden), the automotive division posted a ‘slightly negative’ (their words, not mine) operating margin of €25m.

I can’t say I know enough about European reporting standards to explain the difference between income and margin – but I do understand that a ‘negative operating margin’ means a loss.

The European arms of the US volume carmakers fared little better. Ford of Europe posted full year pre-tax losses of $1.75bn while GM Europe adjusted earnings (EBIT) amounted to $1.8bn, according to figures out this week.

As an aside, it’s worth noting for the pedants among you that the US and France use a ‘thousand million’ as the definition of a ‘billion’; unlike the old British system of a ‘million million’.

The risk for all these companies is that the continental European market declines even further in 2013 and that a squeeze on expenditure puts investment in new cars at risk. As any auto retailer will tell you, market share is driven by fresh product.

And that product has to be good. The old adage that ‘the only good car is a sold car’ remains as true as ever, but there is not much space in the market for bad cars these days. At least on that point the two sides of the industry would agree.

Rupert Saunders

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