Car sales are picking up as a by-product of increased economic growth but the sector remains highly ...
Car sales are picking up as a by-product of increased economic growth but the sector remains highly competitive with few clear winners. Over the past 12 months new car registrations rose some 8% but this has not been enough to tempt SG Asset Management into the autos sector.
Stuart Gilmartin, Europe fund manager at SG Asset Management, sees too much competition in the market, leading to downward pressure on prices and corporate profits.
Car manufacturers account for 4% of the FT/S&P European ex-UK index. However, Gilmartin, who manages the SocGen European unit trust with Dino Fuschillo, has no exposure here.
Gilmartin says: "There is too much downward pressure on prices, particularly in mid-sized cars, and we do not see auto companies as attractive.
He says pricing pressure is exacerbated by increased price transparency offered by the euro. This has thwarted car companies from charging higher prices under the guise of currency differences. He expects the introduction of uniform tax rules throughout Europe to have a similar impact on transparency.
Rod Marsden, European fund manager at Sanwa, acknowledges strong competition is a disadvantage but says increased sales figures indicate there is still promising investment potential.
Marsden is slightly overweight the MSCI Europe (ex UK) Index. He says: "We feel the car manufacturing sector fits into the general framework of economic recovery and increased consumer expenditure
.Marsden says although competition in the sector is impacting on prices, the influence of increased consumer spending outweighs this disadvantage. A further positive is the restructuring and consolidation within the sector. Examples this year have been the acquisition of Volvo by Ford in Europe, and the merger of Daimler and Chrysler in the US. He adds: "This is having an effect on the pricing structure in Europe. The rationale is these companies will benefit from a smaller number of players in the field.
The company Marsden is most positive on is Renault, in which he is overweight. He says the tie-up with Nissan in Japan earlier this year was perfectly timed to capitalise on economic recovery in Japan and Europe
John Millar, European fund manager at Stewart Ivory, is neutral in the automobile sector against the MSCI Europe (ex UK) Index. However, within that allocation he is positive on luxury cars and negative on volume makers with the exceptions of Peugeot and Renault.
He says: "Although Peugeot is a volume car maker it has recently undertaken a lot of restructuring and introduced efficiencies such as platform sharing. Additionally, the outstanding success of the 206 model, launched last autumn, has given the company strong near-term sales momentum.
BMW, the other large holding in the Stewart Ivory unit trust's allocation towards the sector, offers attractive valuations, according to Millar.
He says: "BMW has suffered a loss of credibility following the purchase of Rover five years ago. There remains a lot of scepticism regarding the management strategy at Rover but this does not reflect the strength of the BMW brand.
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