Rating agency says that European carmakers can survive next year’s sales downturn

Article by Christian A., on September 28, 2011

Fitch Ratings said that for the next year, European automakers are not likely to be in a situation comparable to the recession. Emmanuel Bulle, senior director in Fitch's European Corporates team, said that these automakers have a leaner cost structure, broader diversification and higher liquidity compared to when they were struggling during the economic downturn in 2008-2009.

In a statement, Bulle said that the case now is different than in the second half of 2008 since there are early warning signs and the companies can prepare for the slowing down of sales.

He explained that in 2008, automakers’ inventories were very low and this resulted to a cash shortage for their working capital requirements, according to Autonews. He claims that from this experience, the companies have learned to make changes.

He said that measures have been taken by many groups to reduce or delay production at an early stage and to prevent further stockpiling. He said that it is unlikely that there will be sudden major cuts in production that will lead to “under-absorption of fixed costs.”

Fitch added that in the past couple of years, automakers have downsized, reduced the production capacity in Europe, and made its processes more efficient as well as raised the number of flexible staff. It’s easier to make adjustments since 10-15% of the total workforces of car companies are composed of temporary workers.

Renault and PSA/Peugeot-Citroen rely less on western Europe, which is the likeliest to experience a slowdown in sales and to recover the least amount of ground in the final quarter of 2011 and in 2012. But then, the liquidity in the sector is significantly better than how it was at the end of 2008.

Topics: europe

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