US Auto Troubles Eviscerate Foreign Car Company Earnings

The plague of falling US vehicle sales is reaching the earnings of big car companies abroad. BMW "reported second-quarter earnings that trailed analysts’ estimates and abandoned its profit forecast on falling U.S. sales, the dollar’s decline and rising costs for plastics, steel and oil", according to Bloomberg

The strength of BMW’s balance sheet means that the downturn is not a long-term threat to the company, but it could do harm to earnings for a number of quarters to come.

News was not much better at the house that Carlos Ghosn resurrected–Nissan. The company’s profits fell 43% in the last quarter as a poor US economic environment made it write-down the value of leased cars. Nissan also indicated that the problems in America were not going to end soon.

The US in now exporting economic misery at an accelerated rate. Most of the mortgage-paper problems at foreign banks originate with a depression in the US housing industry. Overseas car company results were clearly hit in the latest quarter.

The trouble is not likely to end there. Several large industries will be injured. EADS can almost count on the fact that desperate US airlines will defer some orders. Industrial conglomerates like Siemens (SI) are certain to have sales damage in their electronics and medical products groups.

In Asia, a fall-off in consumer electronics and PC purchases is already beginning to hurt companies, most recently Sony (SNE).

But, auto company earnings are likely to suffer the most. American is still the world’s largest car market, even if total sales drop by 15% or more this year. The problems at Nissan and BMW will spread to other large exporters, especially Toyota (TM), Honda (HMC), and Daimler.

Detroit may be in trouble, but it is no longer alone.

Douglas A. McIntyre