German carmakers tend to weather downturns better than mass-market auto manufacturers

Article by Christian Andrei, on August 13, 2011

Supported by resilient demand for Mercedes-Benz vehicles and strong cash reserves, Daimler AG may be better poised to recover from a sell-off of European vehicle stocks than Renault SA during the recent equity slouch.

According to analysts and investors, high-end vehicle manufacturers like Volkswagen AG's Audi, BMW AG and Mercedes tend to be more resistant to downturns compared to the automakers of mass-market units such as Fiat S.p.A. and Renault due to the fact that wealthy customers still have money despite a slow economy.

Fund manager Juergen Meyer at SEB Asset Management in Frankfurt commented that German luxury vehicle manufacturers are “by far the best bet." He also added that the most stable investment havens are Porsche, Mercedes, Audi and BMW, stating that he continues to be “very relaxed" about the prospects for the biggest premium vehicle makers.

Investors sold vehicle stocks as concern that a slowdown in the economy worldwide became worse after Standard & Poor's downgraded the credit rating of the U.S., and the European Central Bank began purchasing Spanish and Italian government bonds.

This month, the Euro Stoxx Automobile and Parts Index lost 40 billion euros ($57 billion), or 21 percent, of its value in the 14-member index's worst run since November 2008. Fiat, which is the Italy-based automaker controlling Chrysler Group, has led the decline of the sector with a 29 percent drop.

It is followed by Daimler's 26 percent decrease. Car manufacturers are closely tied to the economy due to the fact that people tend to set aside major purchases when they are worried about the future. For some investors, the declines turn the stocks attractive.

Topics: germany

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