Monday, May 01, 2006

Europe Driven Lower by Auto and Oil Stocks

By: Neil Dennis
Financial Times
April 28, 2006

This week, European carmakers announced their quarterly results which indicate that the auto sector has risen more than 18 percent this year. There is hope in the industry that restructuring would reduce the large cost base faced by most European manufacturers. Renault reported higher than expected sales and investors were delighted with a 5.8 percent rise in first quarter sales. Renault’s CEO, Carlos Ghosn, plans to turn Renault into Europe’s most profitable volume car maker in a short four-year time span. Investment firms were very impressed with these results, which Merrill Lynch called “eye popping,” and marked the week’s biggest increase, up 7.4 percent.

On a poorer note, DaimlerChrysler’s shares fell 6.4 percent over the weekend, indicating a loss in profits at both its Chrysler and Mercedes divisions. Additionally, Europe’s largest manufacturer, Volkswagen fell 4.4 percent after failing to meet expectations due to restructuring costs and low quarterly earnings. As Stephen Pope of Cantor Fitzgerald said, “Volkswagen particularly, has to rid itself of its huge cost burden.” On the other hand, brands like Peugeot and Infineon had an increase in quarterly sales.

However, “oil stocks added [the] most downward pressure on the market as crude prices retreated from recent record highs.” Following China’s increase in interest rates last Thursday, interest rates rose “prompting fears that attempts to cool the economy could slow demand for oil.”

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