Shares in the motor industry sector fell yesterday as investors digested a string of bad news about the European and American car market.
Worries that interest rate reductions may not be enough to kick-start sales, and recent warnings from senior industry executives that 1996 would be disappointing, hit shares in big UK component suppliers.
Lucas, GKN and TI were all down, with the gloom rubbing off on motor dealerships and distributors, with Cowie and Inchape suffering.
It follows news that Jaguar has laid off 2,200 workers because of declining sales in key markets, and poor January sales figures from the Society of Motor Manufacturers and Traders.
GKN suffered the biggest fall, with shares down 27.5p to 825p, with Charterhouse Tilney cutting next year's profit forecast. The company had seen its stock rise from 800p at the beginning of January in the hope that European and US car sales would take off this spring.
Lucas, which is more exposed to the motor industry than GKN, fell 3.5p to 193p, after its shares had risen 12 per cent since the start of 1996. One analyst said: "Lucas is a bit tricky. It is harder to get enthusiastic about that stock if European car markets prove to be slow out of the blocks this year." Analysts believe GKN and TI have stronger market share and growth prospects in the automotive sector than Lucas. They also have more diversified interests, with GKN's defence and Chep pallet hire business and TI's John Crane engineering operation.
However, Charterhouse Tilney has cut GKN's 1997 full-year profit forecast by pounds 10m to pounds 390m, while Kleinwort Benson moved from a "buy" to a "hold". Clive Forestier-Walker, Charterhouse analyst, said: "The automotive industry is having a difficult time at the moment and it does not look to be getting any better". Recent downbeat statements from Ford and Mercedes had made investors cautious, he said.
This week Helmut Werner, chairman of Mercedes-Benz, said the industry was heading for a "very difficult time" because of low demand. New European car sales rose just 0.6 per cent to 12 million last year. The European Automobile Manufacturers' Association forecasts a 3 per cent rise this year.
On Tuesday Jaguar, the UK luxury division of Ford, announced that it was laying off production workers for a week, losing production of about 900 cars worth pounds 3.6m.
Latest figures for January show that Jaguar's sales in the US dipped 0.4 per cent from a year earlier to about 888 cars. The company's US sales rose 18 per cent last year. In the UK, Jaguar saw an 8 per cent fall in UK sales in January against the same month in 1995.
According to the SMMT, total UK sales figures for January, traditionally the second most important month for sales after August, were just 0.3 per cent up, to 191,761 vehicles.