Daimler warns on global economy

Two leading automakers delivered downbeat assessments of the global economy in the second half, sounding a warning note from one of the world’s biggest industries.

Daimler and PSA Peugeot Citroen both saw their share price drop after reporting higher second-quarter and first-half earnings but flagging the risks ahead from rising raw material prices and softening consumer demand.

Daimler said that a continuation of the US’s weak recovery, lack of political agreement on raising the country’s debt ceiling, budget cuts in Europe and energy market volatility could hamper growth.

“At the beginning of the second half of 2011, although the world economic upswing still seems to be intact, the outlook has distinctly worsened”, said the Stuttgart-based group.

The company was bullish about its own performance, predicting that its revenues would significantly exceed €100bn ($145bn) this year thanks to strong demand for its premium vehicles, while earnings before interest and taxation would also top last year’s €7.3bn.

Dieter Zetsche, chief executive, also said that he still viewed China, the world’s largest car market, very positively and that it remained a “growth locomotive” for the company.

However, Daimler also warned that “rates of growth in China and India are likely to be distinctly lower than last year”.

PSA Peugeot Citroen’s shares fell by 8 per cent after senior executives said its automotive division would be €300m worse off this year because of soaring raw material prices and supply bottlenecks from the Japanese earthquake and tsunami in March.

The French automotive group said it expected its operating profit for 2011 to be better than last year, but would not predict by how much.

Peugeot said that the sharp price rise for materials such as oil, copper, steel and rubber would cost it €700m, this year, rather than the €500m it had expected, adding that the “pressure” from the commodity markets would almost certainly continue next year.

Philippe Varin, chief executive, said: “Like everyone else, we underestimated the impact of the raw material price increase”.

Continuing problems with electronics and diesel component suppliers in Japan would cost the company another €100m this year, it warned.

Peugeot lowered its forecast for sales growth in China this year to 7 per cent from 10 per cent.
The French carmaker is Europe’s second-largest by sales after Germany’s Volkswagen. Daimler is Europe’s largest truckmaking group, and produces Mercedes-Benz and Smart brand cars.

Automakers, after suffering their worst crisis in several decades in 2008-09, are now profitable again, but have been warning lately about the effects of volatile economic conditions and higher raw material costs. Ford Motor earlier this week reported a 7.7 per cent drop in its second-quarter earnings, and said that the second half of this year would be weaker than the first six months.