World economic crisis engulfs Europe's carmakers

World EconomyBerlin - The hazard lights are flashing over the European car industry, with leading automakers cutting production and scaling back profit forecasts as the world financial crisis hits vehicle sales.

Less than a week after cutting its earnings forecast again, the giant German auto maker Daimler AG flagged plans Monday to shut down work for about four weeks over Christmas at key plants, including one producing its flagship luxury Mercedes-Benz cars.

What was needed now Daimler chief Dieter Zetsche told company employees was "the right mix of fighting spirit and perseverance." The deepening economic gloom resulted in European car sales slumping sharply in September, the Brussels-based European Automobile Manufacturers' Association (ACEA) said this month, with auto registrations falling to their lowest level in a decade.

"The drop in registrations confirms the aggravating market circumstances, as the fall-out of the financial crisis hits auto manufacturers hard," the ACEA said.

Daimler's move to shut down production could result in about 150,000 workers having an extended Christmas break.

This came in the wake of a slew of European carmakers such as General Motors' owned European Opel unit saying they were cutting production with the financial crisis hitting the car industry just as it battles to recover from high fuel costs and environmental worries.

The world's leading premium auto group BMW said on the weekend it was also leaving plants idle as the looming recession meant car buyers were shying away from showrooms.

The steady stream of grim news out of the European car business came as the industry braces itself for a further round of downbeat company reports as the auto sector's third-quarter reporting season gains momentum.

While the world's leading luxury carmaker Munich-based BMW AG is expected to report a fall in profits and revenue, Europe's biggest auto manufacturer Volkswagen AG is predicted to post a modest rise in earnings on Thursday on the back of a solid performance of its core VW brand.

VW said last week that world-wide deliveries increased 3.9 per cent to 4.8 million vehicles in the first nine months of the year, as strong demand from leading emerging economies helped to offset declines in other international markets.

However, VW's offshoots Seat (Spain) and Skoda (Czech Republic) are being forced to cut production.

"The credit crunch weighs on the sector's ability to finance daily operations," the ACEA said, releasing its latest figures for Europe showing annual registrations falling 8.2 per cent last month.

"Customers are increasingly hesitant to make large expenditures and find it more difficult to get their purchase financed," the association said.

Signs have also emerged that the bleak business mood among carmakers was starting to spill over into auto parts sector, with the leading auto accessory group Bosch saying it was idling a key plant and sending 400 workers home.

Releasing its latest third-quarter results, Italy's Fiat warned that in a "worst case scenario" its 2009 profits could slump to 400 million euros (513 million dollars) from a projected 3.4 billion euros this year.

Indeed, in addition to the downbeat third-quarter earnings' report, it is the grim outlooks from the carmakers which are unnerving the industry and which have resulted in European stocks taking a big hit in recent weeks.

Last week, France's two leading carmakers PSA-Citroen and Renault SA slashed their earnings forecast after fall in sales.

While PSA-Citroen announced it was cutting its full-year earnings outlook and production after reporting a slump in third-quarter earnings, rival Renault also foreshadowed plant closures.

PSA-Citroen was reacting "very swiftly to this market collapse," said the company's chief Christian Streiff.

The drop in new European car registrations in September was unusual, the ACEA said, as auto sales normally pick up after the slower summer months. This resulted in registrations hitting their lowest level since September 1998. (dpa)

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