A slump in the global automotive sector could give impetus to plans for consolidation within the industry, according to the head of the French carmaker Renault.  Its CEO Carlos Ghosn said on Saturday that he expects mergers among automakers because car companies' stocks are ''undervalued.'' Ghosn also heads the management at Japanese automaker Nissan.

''When you've got General Motors Inc. (GM), the world's biggest carmaker, worth $6 billion, or 3 per cent of its revenue, that is about two weeks of revenue, you know very well that something is going to happen,'' Ghosn said during the Economic Forum of Aix-en-Provence in southern France.

In Europe, the Dow Jones Auto & Parts Index is trading at 8.3 times earnings, less than half the level four years ago. The Dow Jones Utilities Index, including companies such as E.ON AG and Centrica Plc, trades at a multiple of 13 and has held above 10 times earnings since 2004.
Ghosn said the problems of the US sector could spur deals. "What is happening in the states at the moment does not bode well for the future," he said.

The United States, the world's largest automobile market, is reeling from record gasoline prices, tighter credit conditions and a slump in housing. Auto sales fell to a 15-year lo this June.

Automakers from Renault, France's second-largest, to GM face pressure on profit margins as an increase in steel costs reduces profitability and record crude oil prices damp consumer demand.

GM shares have fallen to their lowest since 1954 adjusted for stock splits, while Renault shares have slumped 55 per cent from their peak last year, valuing the company at €14.9 billion ($23 billion).

Renault's revenue is about 2.7 times its market value.

Ghosn's comments assume significance because of the shared history between GM and his charge. On 30 June 2006, the media reported that General Motors convened an emergency board meeting to discuss a proposal by shareholder Kirk Kerkorian to form an alliance between GM and Renault-Nissan.

The hastily arranged meeting suggested that GM's board was treating Kerkorian's proposal with urgency. Coincidentally, unsubstantiated rumours have been circulating about Renault's possible return to the US market.

There had been speculation that a GM–Renault–Nissan alliance could have paved the way for Renault's return to the American market, since GM could have eliminated some of its less profitable brands, and offered Renault franchises to dealerships that would have otherwise closed.

However, GM CEO Richard Wagner felt that an alliance would benefit Renault's shareholders more than those of GM, and that GM should receive some compensation for it. This did not sit well with Renault; subsequently, talks between GM and Renault ended on 4 October 2006.

The company, based in Boulogne-Billancourt, expects steel costs to increase €1 billion ($1.6 billion) next year and plans to pass on some of that increase to consumers, Ghosn said. Costs for the metal will rise as much within the next year as they did between 2006 and 2008, he said.

''So far consumers haven't seen much of it,'' he said. ''They will see more of it gradually.''

Steel prices remaining at current levels would cause costs to rise €200 ($314) per car, on top of a €100 increase last year, Citigroup Inc. analyst John Lawson said in a research note this past week. The price of steel sheet, used in cars and appliances, rose to a record $1,052 a ton in June, up 3.1 per cent from the previous high in May, according to Purchasing magazine. Oil reached a record $145.85 a barrel this week.

Ghosn said that he had raised this steel price issue with the European Central Bank and reiterated his support for a weaker euro compared with the dollar. The weakness of the dollar has hurt European companies' overseas sales because its makes their cars' prices less competitive.

"As a car manufacturer, I want the lowest possible price for the euro," Ghosn said.

Renault is preparing to mass produce electric cars, as it seeks to offset the effect of record oil prices, he also added. He said that India and Morocco will feature prominently in the company's expansion plans as the manufacturing hubs of its electric vehicles.

Renault SA is France's largest carmaker. It owns a controlling 44.4 per cent stake in Nissan, while Nissan has a 15 per cent stake in Renault. Ghosn heads both companies.