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.

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

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