Car makers still struggling with recession

A hat trick of results from Honda, Nissan and PSA Peugeot Citroën yesterday underscore automakers' struggles against the recession that has taken the bottom out of demand for cars.

Honda reported profits slashed by 96 per cent to ¥7.56bn (£48.5m) in its first quarter to the end of June. Nissan fared even worse, showing a net loss of ¥16.5bn – a 131 per cent drop on the previous year's ¥52.8bn profits, and its third quarter of losses in a row.

Closer to home, Peugeot Citroën made a loss of €962m (£824m) in the first half of the year, compared with profits of €1.03bn in the same period of 2008. The French group's revenues dropped by 22 per cent to €23.5bn. With vehicle sales down by a massive 20 per cent so far this year, Peugeot Citroën's outlook remains gloomy. The company yesterday forecast a 7 per cent contraction in sales in the second half of 2009, confirming predictions of an operating loss of somewhere between €1bn and €2bn for the full year.

The 14.2 per cent drop in Europe's demand for cars so far this year would have been bigger still but for the array of cash-for-bangers schemes introduced by governments to shore up ailing suppliers. And the market will not show any significant signs of recovery before the end of 2010, Peugeot-Citroën said.

But despite the woeful figures, the picture is not unremittingly gloomy. Peugeot Citroën managed cash flow of €467m on the back of a 31 per cent drop in its inventory. And both the results from Japan beat analyst forecasts. As an indication of the depths of pain the automotive industry has suffered, Honda and Nissan's first-quarter numbers were both a significant improvement on the previous three-month period, where they recorded losses of ¥186bn and ¥277bn respectively.

Not only are inventory positions improving, Honda has raised its profit outlook for the year from March 2009 to March 2010 by ¥15bn to ¥55bn. But the group's ability to claw its way back into the black last quarter was helped as much by cost-cutting efforts as any significant improvement in sales, notwithstanding June's 5.7 per cent boost in domestic sales from the introduction of the Insight hybrid.

Nissan is less upbeat, and is still predicting losses of ¥170bn for the year as a whole. But while global sales were down 22.8 per cent, hit particularly hard in the US, European and Japanese markets, sales in China surged by 9.3 per cent to hit 145,000, and for the first time Nissan sold more vehicles in China than in its domestic market. Nissan's Chinese partner, Dongfeng Motor Corporation, yesterday announced plans to expand the joint venture's plant, in Guangzhou City, to a capacity of 240,000 cars per year. The factory will start production in 2012.

Given the volatile conditions in the car industry, the performance of Toyota – the world's biggest manufacturer – will be under particular scrutiny when it reports quarterly numbers next week. Analysts are expecting a loss.