European auto stocks are stuck in first
gear
this chart showing share prices falling
even as earnings forecasts are upgraded
says it all
investors clearly don't have much faith
that those profits can continue for long
car sales have peaked in the United
States and seemingly in the UK -
investors fear that shrinking volumes
and weaker pricing in the down leg of
the cycle will be exacerbated by the
leverage in their financial services
subsidiaries these are vast undertakings
as this chart shows and in addition to
generating extra profits financing
operations have helped car makers sell
bigger and more profitable cars more
frequently but could they now pose an
existential threat to manufacturers many
investors worry that falling used-car
prices and rising interest rates could
expose bad lending and trigger write
downs although car makers content that
their expectations of second-hand car
values are actually very conservative
and let's face it there is little
evidence of looming stress in the bond
or stock markets finance subsidiaries
can still raise funds at very very low
interest rates Volkswagen has just
securitized 89,000 Spanish car loans at
just 38 basis points over one month
Euribor that's the lowest rate for an
asset-backed issuance in Spain since the
financial crisis and last month so CSU
general floated its auto finance
subsidiary Ald at almost twice its book
value that's a rating the most banks can
only dream about the moderation of the
leasing boom will hurt car makers but
unless the markets have got it very
wrong the financial risk posed by the
fin cosas to the auto makers themselves
is fairly small