Archive for May, 2011

As profits surge, Europe’s carmakers rev up global ambitions

Sunday, May 1st, 2011 | Finance News

PARIS (AFP) – Two years after a world economic downturn all but wiped them out, European carmakers have bounced back to the spotlight with Volkswagen aiming to be the industry leader and Fiat carving out a global brand for itself.

Unfettered of their obligations to repay state aid and riding out the expiry of government "cash-for-clunkers" schemes that initially plunged their revenue, carmakers this week gave rosy outlooks for the rest of fiscal 2011.

Germany's Volkswagen reported a three-fold profit leap in the three months from January through March to 1.71 billion euros ($2.5 billion), selling two million cars, a new milestone for Europe's biggest automaker.

The comparable figure for 2010 was 473 million euros.

Finance director Dieter Poetsch said a cash pile worth 19.6 billion euros gave the group impetus to overtake General Motors and Toyota and become the leading global car maker by 2018.

With respect to 2011, Chairman Martin Winterkorn, who has boosted VW's fortunes since he took over in 2007 said: "Volkswagen shifted into the fast lane in 2010 and that?s exactly where we intend to stay this year."

Fellow carmaker Daimler also posted stellar first-quarter net profit thanks to burgeoning demand in China, where an increasingly affluent middle class snapped up its luxury Mercedes-Benz cars and its heavy trucks met construction demands.

The automaker said net profit jumped to 1.18 billion euros ($1.75 billion) in the first quarter, from 612 million euros in the same period of 2010.

In one of the most noteworthy shake-ups in the sector, Italy's Fiat took a step closer to joining the ranks of the world's top automakers with a $1.3-billion deal to boost its stake in US unit Chrysler to 46 percent.

The carmaker, known more for its small city cars largely targeting the domestic market and niche-market Ferrari and Maserati sports car brands, has not shied away from displaying its ambitions under its chief Sergio Marchionne.

Fiat took over management of the iconic US company after it emerged from bankruptcy in 2009 and currently owns a 30-percent stake. Chrysler suffered from an implosion of auto sales in the United States.

Fiat gave Chrysler access to much-needed small-car technology and Chrysler offered dealership networks which the Italian manufacturer lacked, notably in the United States.

Marchionne has also in recent months suggested moving Fiat's headquarters from Turin to Detroit, drawing the ire of Italy's politicians and labour unions.

Although carmakers are changing gears into the fast lane, speed bumps remain ahead, including potential shortages of critical components after the devastating earthquake and tsunami in March hit Japanese components firms.

Nearly all automakers source at least some vehicle parts from Japan.

France's PSA Peugeot-Citroen and Sweden's Volvo have either already, or plan, to slash production of thousands of vehicles in the United States and Europe due to worries about a shortage of key parts made in Japan.

Europe's automakers will also face increasing competition from rivals in China that have long-held hopes of freeing the auto market -- now the world's largest -- from domination by foreign brands.

Toward that goal, they are expanding aggressively, buying foreign automakers, acquiring technology and setting up factories and dealer networks across Asia, the Middle East and Eastern Europe.

"China has never made any secret of its ambition to have a great auto industry," said industry analyst Michael Dunne, president of research firm Dunne & Co.

SAIC, the largest Chinese automaker by sales because of its joint ventures with General Motors and Volkswagen, earlier this month launched the first model of its Baojun brand, co-developed with GM and Wuling Motors, as part of a new breed of local brands which are increasingly seen as a new condition for international carmakers operating in China.

The new policy reflects Beijing's impatience at domestic companies' slow progress in developing their own engine technology, Dunne said -- the new brands mean Chinese companies co-own the cars' intellectual property.

No official directive behind the trend has been published, but Dunne said that anecdotally the message was that "the life of a joint venture company is going to be a lot smoother from a regulatory point of view -- a lot smoother -- if there's a new brand".


Buffett remains solid on the American economy

Sunday, May 1st, 2011 | Finance News

OMAHA, Nebraska (Reuters) – Warren Buffett is no analyst, but he still has a "strong buy" rating on America.

Tens of thousands of Berkshire Hathaway shareholders who descended on Omaha this weekend for the conglomerate's annual meeting got one unmistakable message from Buffett -- no matter how bad the economy, or the deficit, or the political divide, the United States is as good a place to live and work as ever.

"I don't see how anybody can be other than enthused about this country," Buffett told Berkshire shareholders on Saturday.

Buffett, often called the "Oracle of Omaha," is one of the world's richest men and leads a conglomerate that owns railroads, insurers and ice cream parlors.

The comments echo those Buffett made in February in his annual shareholder letter, but the words still may encourage investors looking sideways at the country, particularly after Standard & Poor's put the U.S. government's critical "AAA" credit rating on a negative credit watch.

Buffett told Reuters Insider that S&P's move was premature, given the U.S. government issues debt only in dollars and can simply print more money to pay debt if absolutely needed.

"The United States is not going to default on any obligation," Buffett told Insider in an interview after the annual meeting. "We are not a credit risk, believe me."

Where Buffett's enthusiasm wanes to any degree, it is mostly in conversation on the dollar, which he said is sure to weaken over time, like most other currencies.

Buffett, as usual, said he was shying away from fixed-income investments for Berkshire's part, even as he keeps some of his personal wealth in Treasuries for safety's sake.

Some worry that safety could be threatened by the debate over the national debt ceiling, an issue that has divided Congress in recent weeks and gotten more tense as the country gets closer to its legal limit on debt issuance.

Buffett, asked about the possibility Congress would not raise the ceiling, made one of his most-repeated comments of the whole weekend, saying it would be the legislature's "most asinine act" in its history.

(Reporting by Ben Berkowitz, editing by Maureen Bavdek)


Merkel hesitates in backing Draghi for ECB: report

Sunday, May 1st, 2011 | Finance News

BERLIN (Reuters) – German chancellor Angela Merkel is hesitating to back the nomination of Italy's Mario Draghi as the next president of the European Central Bank because she wants several demands met in return, a magazine said on Sunday.

Der Spiegel said that Merkel wants two Germans to be appointed to top European finance positions in addition to further concessions on the permanent euro zone bailout fund, the European Stability Mechanism (ESM).

German government officials on Friday rejected media reports that Merkel has already agreed to back Draghi, the head of the Bank of Italy, to succeed ECB president Jean-Claude Trichet after France threw its own support behind Draghi last week.

"Merkel is hesitating in endorsing Draghi (because) she wants to win at least a few consolation prizes through bargaining," Der Spiegel said, a reference to her dashed hopes of having a German succeed Trichet when Bundesbank head Axel Weber quit.

"But more important for Merkel are concessions on the ESM," added the normally well-informed magazine in its Monday edition.

"Even though government leaders agreed to a permanent crisis fund in March there are still many disputed issues," it said.

The ESM, with an effective lending capacity of 500 billion euros ($740 billion), will raise funding for and provide loans to euro zone states in financial trouble to safeguard the stability of the euro zone.

Der Spiegel said Merkel would like to have the unresolved details on the ESM cleared up definitively by June whereas countries such as Italy are pushing for non-binding language.

"And these aren't minor issues but rather include questions such as what kind of majority will be needed for ESM decisions and whether the fund itself will be empowered to create new instruments," Der Spiegel said.

The magazine added Merkel would also like to revisit an issue that was thought to have been resolved -- whether private creditors will be obliged to take part in future rescues.

On top of that, Merkel would also like to see two Germans appointed to key European jobs in exchange for her supporting Draghi's nomination -- leading the EU's Economic and Financial Committee (EFC) and the London-based Financial Stability Board


Deputy Finance Minister Joerg Asmussen should take over the EFC, while continuing in his role as deputy to Finance Minister Wolfgang Schaeuble, and new Bundesbank president Jens Wiedmann should replace Draghi as the FSB's chairman.

Bild newspaper said last week that according to sources in the chancellery Merkel had abandoned the search for a German candidate for Trichet's post.

The Wall Street Journal Europe had said on Friday that Merkel supported Draghi and would try to sell his nomination to a skeptical German public by arguing that his southern European origins will be an asset in persuading the euro's southern members to adopt a stricter financial discipline.

($1=.6753 euros)

(Editing by Greg Mahlich)