European automakers struggle while Japanese excel

Automotive Industries, May, 2003

The year continues to be tough for European automakers who face a difficult market at home and currency challenges abroad while Japanese automakers report mostly gains for fiscal year 2002/3.

Mitsubishi Motor Corp. says its profits tripled during its last fiscal year, which ended March 31. It was the first time since 1997 that the company's sales revenue increased.

Profits during the year touched $317 million, up substantially from the prior year. Additionally, global sales increased 10 percent to $33 billion.

While the Japanese market remains tough for the automaker, sales in North America increased 6.6 percent.

The automaker continues to benefit from a restructuring and cost cutting plan that is a part of its alliance with DaimlerChrysler.

Meanwhile, Honda said its operating profit increased 7.8 percent to $5.75 billion for the year. Looking ahead the company said a stronger yen is expected to cut profits for FY 2003/4.

Mazda also had a successful year with a 77 percent jump in operating profit thanks to a turnaround that allowed the company to meet its objectives. Unlike Honda, Mazda expects to see substantial growth in FY 2003/4. It is counting on popular new products in Europe to fuel the growth.

In Europe, automakers faced challenges from aging products, an ailing market and fluctuating currency.

Germany's Volkswagen said its 2003 earnings would be lower after warning first quarter profit would drop substantially due to high development costs, weak exchange rates and equity writedowns.

The company's product line is quickly aging while development costs for replacements are increasing.

"We assume there will be a substantial improvement in operating profit during the course of the year, particularly in the third and fourth quarters," says Bernd Pischetsrieder, VW chief executive at the company's annual shareholder meeting.

Meanwhile, DaimlerChrysler's first-quarter profit rose 38 percent to $1.5 billion compared to last year. But the company said its revenue is expected to fall this year due to the fact that its Chrysler unit is unlikely to meet its 2003 operating profit target of $2 billion thanks to the weak U.S. market.

Slowing sales in Europe and the U.S. coupled with a weak dollar have hurt European automakers in both markets.

For those not selling in the U.S., first quarter earnings were varied.

Renault's first quarter revenue dropped 2.9 percent to $9.96 billion due to aging products, a weak market and currency problems. The number of vehicles it sold also dropped. The company sold 582,079 vehicles -- down seven percent from same time last year. In Western Europe sales increased 1.4 percent to 660,000 units.

One of the few bright spots in Europe was PSA Peugeot Citroen, which said its first quarter revenue increased three percent compared to 2002. It saw sales increase in France, Spain, Italy and Germany. Renault's results are expected to turn around this year as it launches new vehicles in its Megane family. Outside Western Europe sales rose in Turkey and China.

Strong sales of its subcompact C3 was the main reason for the increase.