Renault-Nissan CEO sees consolidation in auto industry

07 July 2008

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.