Tag Archives: EU

– VW warns on risk of decline in car market

VW warns on risk of decline in car market 

FT.com / Companies / Automobiles –

By Daniel Schäfer in Berlin
Published: August 13 2010 18:54 | Last updated: August 13 2010 18:55
Volkswagen on Friday sounded a warning bell over the recovery prospects for the motor industry, as Europe’s largest carmaker warned that the global car market could shrink in the second half of this year.
Christian Klingler, VW’s executive board member and head of sales, cautioned of a bumpy road ahead after the carmaker’s July sales growth considerably slowed down.
“Now that incentive programmes have come to an end, the global automotive market is expected to decline in the second half of the year,” Mr Klingler said, in a warning shot that took even close market observers by surprise.
While it is common sense among analysts and car executives that growth will slow in the second half of the year, most do not forecast vehicle sales to fall.
“We expect global sales to remain just above the level seen in the second half of 2009,” said Christoph Stürmer, analyst at IHS Global Insight.
But he added that production levels would drop significantly, as many mass market carmakers had ramped up their plant output too fast in the first six months.
“It was about time that someone came out with a warning, as the car industry has become overly euphoric,” Mr Stürmer said. “This [high level of production] will lead to a pricing battle in the remainder of the year.”
Global carmakers have been basking in a rapid sales recovery in the first half of the year, which helped many to return to profits and revenue growth after last year’s economic crisis. But as state-sponsored scrappage incentives run out and austerity measures kick in all over the continent, IHS Global Insight forecasts western European car sales to fall by 1.1m units to 5.5m vehicles year-on-year in the second half.
Car sales in the US and China, the main demand drivers in the first six months, are still growing but have been losing steam rapidly in the past few months.
VW’s July sales highlighted how the car market recovery is rapidly losing traction.
In the past month, the multi-branded carmaker’s deliveries grew by 2.9 per cent to 572,200 cars.
This marked a steady decline from the growth rates of 5.7 per cent in June and 8.6 per cent in May. Due to a much faster upswing in the first quarter of the year, VW’s sales are still up by 13.7 per cent in the first seven months.
VW, which is set to add sports car maker Porsche to its stable of nine brands next year, sold a record 4.16m cars between January and July.
But Mr Klingler warned that this pace would be difficult to maintain. “There will not be a return to the high pre-crisis levels this year,” he said, referring to the global car markets.
“Over the coming months we will continue on our growth path . . . However, this will be a challenge, given an operating environment that is again becoming difficult,” he added.

FT.com / Companies / Automobiles – VW warns on risk of decline in car market


Currencies The Race to the bottom


Race to the bottom

A weak economy and an active Federal Reserve have driven the dollar down since June. Will that last?

THREE months ago, when Europe’s debt crisis had markets panicking about sovereign risk, it seemed that all roads led to the dollar. The greenback was rising against the other big global currencies, the yen, pound and euro. Its role as the world’s reserve currency seemed an inestimable advantage when investors were unsure where they could safely park their cash. Within the rich world, America’s economy looked the best of a bad bunch. The stage seemed set for a dollar rally.
How quickly things have changed. On August 11th the dollar fell to a 15-year low against the yen of ¥84.7. It perked up against the euro to $1.29, though that was still much weaker than the $1.19 it reached in early June when euro-revulsion was at its worst (see chart 1). The ground the greenback has lost in recent weeks owes to a run of weaker data about the economy, not least on jobs (see box on the next page). On August 10th the Federal Reserve conceded that the recovery would probably be slower than it had hoped. The Fed kept its main interest rate in a target range of 0-0.25% and stuck to its creed that rates would need to stay low for “an extended period”. In addition the central bank said that it would reinvest the proceeds from the maturing mortgage bonds it owns into government bonds to prevent its balance-sheet (and thus the stock of ready cash) from gradually shrinking.
This modest change in Fed policy was widely expected. It signalled concern about the economy while stopping short of panic measures. That did not stop stockmarkets from slumping the day after the Fed’s statement—perhaps because investors had hoped the central bank would go further and commit itself to a fresh round of asset purchases, or perhaps because they were unnerved by the Fed’s more cautious tone on the economy. But the Fed’s shift still seemed to confirm that it is more minded than other central banks to keep its monetary policy loose, a perception that has contributed to the dollar’s slide and helped America’s exporters. The day before the Fed’s decision, the Bank of Japan kept its monetary policy unchanged. The European Central Bank (ECB) has allowed short-term market interest rates to rise as it withdraws emergency liquidity support from the banking system.
Events in America do not determine the dollar’s fate: exchange rates have two sides. The euro has bounced back since June in part because markets are more confident that Europe has got to grips with its sovereign-debt problems. The currency’s strength also reflects a stronger economy. Figures due out after The Economist went to press were expected to show that the euro area’s GDP grew a bit faster than America’s in the second quarter, thanks largely to booming Germany. But the problem of sluggish growth in the euro zone’s periphery has not gone away. A strong euro amplifies the lack of export competitiveness in Italy, Spain, Greece and Portugal. That is one reason why many analysts think the euro is likely to weaken again.
The yen’s rally, in contrast, may have further to run. It is trading against the dollar at levels last seen in the aftermath of the peso crisis in the mid-1990s, when the yen had greater claim to being a haven from troubles elsewhere. But the yen’s renewed strength may not be quite as painful for Japan’s exporters as that implies. Years of falling prices in Japan combined with modest inflation elsewhere mean the real effective exchange rate is below its average since 1990 (see chart 2). Because Japan’s wages and prices have fallen relative to those in America and Europe, its exporters can live with a stronger nominal exchange rate.
What needs explaining, then, is not why the yen has strengthened recently but why it was so weak before. Kit Juckes of Société Générale reckons that the low yields on offer in Japan provide most of the answer. “The yen is under-owned because Japan had by far the lowest interest rates in the world,” he says. But now falling bond yields in America, as well as in most of Europe, have made Japan a less unattractive place for investors to put their money. The more that the rest of the rich world resembles Japan, the less reason there is to shun the yen. There are even stories that China has been buying Japanese bonds as part of its effort to diversify its currency reserves away from the dollar.
Such interest may not be entirely welcome in Japan. A cheap currency is especially prized now, when aggregate demand in the rich world is so scarce and exports to emerging markets seem the best hope of economic salvation. Japan’s finance minister has complained that the yen’s recent moves are “somewhat one-sided”. That kind of talk has spurred speculation that Japan’s authorities may soon intervene to contain the yen’s rise. But such action would spoil the rich world’s efforts to persuade China to let its currency appreciate. It is perhaps more likely that the Bank of Japan and the ECB will follow the Fed’s lead in extending (albeit modestly) its quantitative easing—or risk a rising exchange rate.
The battle for a cheap currency may eventually cause transatlantic (and transpacific) tension: not everyone can push down their exchange rates at once. For now, though, the dollar holds the cheap-money prize.