As we continue to look at American automakers each quarter, it's hard not to notice the massive losses they face in Europe. Even though the American economy continues to show improvement month by month, it appears that sales across the Atlantic will continue to hamper quarterly revenues for American automakers like Ford (F) and General Motors (GM). Let's take a look at each company's recent European track record and what is forecasted for sales on the continent in the near future.
Car sales in June fell to their lowest point since 1996 for the European Union, and analysts are wondering if the data could get worse before it gets better.
- New car registrations in the EU dropped 5.6 percent in June to 1.175 million cars from a year ago.
- It had just fallen 5.9 percent in May
That last plunge in May was at twenty-year lows and had already quenched the hopes of an auto sales recovery in 2013.
With the results from June adding insult to injury, experts are very pessimistic about any type of recovery in 2013. Pessimism has them believing there might be a staggered recovery for Western Europe the first half of 2014, but not before.
Western Europe could see a marked decline of four to six percent for 2013 when all is said and done. This is going to have an adverse effect upon the earnings of American automakers.
Ford has been hit as hard as any American automaker in Europe. If we look back at recent quarters, it looks like the fourth quarter of 2012 was the worst in terms of losses for the automaker. Even though it looks like its losses are lessening, the company is still losing hundreds of millions of dollars each quarter.
Ford is not the only company that has continuous struggles in Europe. The region has also been a black spot for General Motors. For the company's fiscal year 2011, the company lost $562 million in the fourth quarter and more than $700 million for the year.
2012 was much better for the company. Even though it posted profits for the year of $4.9 billion, which was down 36% from the year before when it posted a $7.9 billion profit. European losses dragged the company down which amounted to $1.8 billion because of an excess of factories and workers, as the economy on the continent continued to falter.
While the entire auto industry in Europe is expecting a six percent annual contraction, the slower sales is affecting more than just auto manufacturers. Continental AG (OTCPK:CTTAY), the second largest auto parts maker in Europe, has also scaled back its sales forecast because the tire market is not in a recovery as was expected. The German-based company has lowered its 2013 revenue projections by 20%. Frank Biller, a German-based analyst with LBBW had this to say about Continental's 2013 revenue adjustment:
"They are dampening the expectations of a little as the situation in Europe is likely to remain difficult for some time."
Continental AG is also one of the largest tire manufacturers in Europe. Since the price of rubber has been low, this helped boost the company's second-quarter profits but expectations for the auto industry as a whole remain low.
Auto sales will continue to slump in Europe as the economic crisis drags on. July continued the slump as sales contracted by 8.2%. If you own either Ford or General Motors stock, expect the European market to remain challenging through the rest of the year and possibly into 2014. The key to the American automakers' revenue will continue to be North American sales in the short term. The economy in North America needs to continue to grow in order to offset the challenges that the companies are going to continue to face in Europe.
Note: The chart was made by the author with figures taken from Ford's quarterly reports.