Car Industry Gloom - Hey Guys Make Lemonade Ourt of Lemons

FRANKFURT/TOKYO August 1, 2008; Christiaan Hetzner and Chang-Ran Kim writing for Reuters reported that the clouds hanging over the global car industry cast dark shadows over two more makers on Friday as BMW issued a profit warning and Nissan Motor badly missed quarterly operating profit forecasts.

"Business conditions for the automobile industry deteriorated sharply again in the second quarter due to further ongoing steep rises in oil and raw material prices, the weakness of the U.S. dollar, the impact of the international financial crisis and a weaker U.S. economy," Germany's BMW said.

The world's biggest premium carmaker will miss its 2008 targets after a 44 percent plunge in quarterly pretax profit to 602 million euros ($937.3 million), well below a Reuters poll estimate of 1.04 billion, bringing its margin to just 4.1 percent.

Nissan, Japan's No.3 automaker, controlled by Renault SA, posted a much worse-than-expected 46 percent drop in quarterly operating profit, but stuck to its annual forecasts, which call for its lowest operating profit in seven years.

GM later on Friday added to the gloom with a $15 billion quarterly loss, the third-largest in its history, as North American sales dropped 20 percent.

A housing crisis pushed U.S. car sales to a 15-year low in June and decimated used vehicle prices, and the economic contagion is spreading to other markets, leading to a decline in Europe of nearly 8 percent last month.

Few have been spared, and those heavily dependent on the U.S. market have been suffering worst of all.

Ford reported a record quarterly loss, and even the reliable outperformer Toyota has had to slash sales targets. Renault has slowly backed away from its 2009 profit forecast, Honda trimmed its expectations and Daimler abandoned its guidance entirely.

ANOTHER DIFFICULT YEAR

BMW, which had been widely expected to lower its 2008 targets after Mercedes-Benz parent Daimler's warning last week, also poured cold water on hopes for a quick rebound the following year, too.

"We assume that 2009 will be another difficult year full of challenges," Chief Executive Norbert Reithofer said, having to reduce expectations for the first time as head of the carmaker.

BMW now expects the growing raw materials bill this year to make a further 400 million euro dent in profit as prices for steel, metals and plastics continue to climb.

It has buried plans to build the X7, which would have been positioned as the brand's largest sports utility vehicle, as demand for gas-guzzlers has plummeted thanks to $4 a gallon pump prices.

BMW shares dropped nearly 11 percent in early trade and were down 7.1 percent at 26.85 euros by 1053 GMT. Nissan closed down 1.4 percent before the results news.

Nissan Chief Executive Carlos Ghosn said last week he expected total U.S. market volumes near 14.3 million vehicles in 2008, the lowest level in over a decade in his biggest market.

Nissan's vehicle sales grew 6.9 percent in the first quarter thanks to brisk sales of the Qashqai crossover and Versa subcompact. But Nissan, like many of its rivals, is being forced to reduce light truck production amid flagging demand.

USED-CAR BLUES

BMW now forecast a 2008 pretax profit of at least 4 percent of sales, after previously expecting margins to improve over the 6.9 percent achieved last year, and dropped its absolute target of exceeding an adjusted level of 3.78 billion euros in 2008.

Sinking used car prices forced the company to more than double its risk provisions to 695 million euros due to lower than expected revenues from selling cars coming off lease.

BMW has leases amounting to 17 billion euros on its books.

It will also scale back its U.S. sales efforts, shifting as much as 40,000 vehicles to more lucrative markets abroad.

Underscoring the severity of the U.S. market, Nissan this week said it would offer buyouts at two plants in Tennessee in the hope of eliminating 1,200 workers, about a fifth of its headcount. It is operating far below capacity in North America as sales of pickups and other big vehicles slump.

Nissan also faces pressure from the resale value of big, used cars and said a 42 billion yen ($390.4 million) provision against that risk was a major reason behind its big profit fall.

April-June operating profit fell to 79.95 billion yen, against an average estimate of 101.9 billion yen in a Reuters poll of nine brokerages.

For the business year to end-March 2009, Nissan kept its forecast for an operating profit of 550 billion yen and net profit of 340 billion yen, both down 30 percent from last year.

Consensus forecasts from 18 brokerages call for an operating profit of 586 billion yen and net profit of 364 billion yen.

Editing for Reuters by Will Waterman