Continental AG : CFO Sees Weak First-Quarter Business in Europe
01/14/2013| 08:32am US/Eastern
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By Nico Schmidt
DETROIT--German car supplier Continental AG (CON.XE) expects the first quarter of 2013 to be difficult because of weak business in Europe, Chief Financial Officer Wolfgang Schaefer said Monday.
Mr. Schaefer predicts European car production will decline by 10% to 12% in the first quarter. Last year, significant growth in the U.S. compensated for weak development in Europe but it has become increasingly difficult to exceed prior-year figures in the U.S., he noted.
Over the course of the next year, however, the CFO expects demand in Europe to recover and he forecasts full-year production to be 2% below the 2012 level.
U.S. car production will slightly rise this year and production in China will increase by 8% to 10% so there will be a 2% to 3% increase globally, according to Mr. Schaefer's predictions.
Continental AG's business will see growth predominantly in the second half of 2013, he added.
Write to Nico Schmidt at nico.schmidt@dowjones.com
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Well overall it might really be not a big reason to worry, as said previously, but still, even this company has to be cautious. Although they just recovered and are back in the prime market I think they still need to hustle to get back to their full strength.
It is for sure no reason to worry much, both Continental and Schaeffler are cautious players that they have made very careful plannings of each expansion location and amount of budget needed with their long history and experiences in automobile. Their past year performances have shown the effectiveness of their solution to deal with the current market problem, and there's a lot more expansions to be done before and in 2014. Moreover, their exhibition in the North America International Auto Show in Detroit last month was a one of the highlights of the event, interests of the American and other international markets were shown to Schaeffler's fuel efficiency technology parts and Conti's semi-automated vehicle technology, an emerging wave of car renewal is coming between 2013 and 2014
The weak economic performance of Europe is not that beyond expectation. Since Dec 2012, the market and investors are more cautious with further investments. However, with the expansion of Schaeffler and Continental AG, we should be more confident to their future and potential to growth.
I think weaker growth rate in EU is expected. Last year, many countries fell into financial crisis. Some countries starts recovery but still some countries are struggling on not being bankrupt. Schaeffler group or Continental is now focusing on US and other new market, like Africa, Russia. I hope they will keep a good performance in coming year.
Not just about the expansion do look similar for both Continental and Schaeffler, but also innovations as well. Continental invests 5% of the revenue into R&D while Schaeffler spends 7% of theirs. It is the large amount of R&D budget which heavily reduces the development time, Schaeffler announced that concept car of future mobility during the Detroit North America International Auto Show, in which showcased a series of excellent design with outstanding durability in fuel saving of up to 15%. While Continental demonstrated their functional semi-automated vehicle during slow speed, a fully automated one a said to be done before 2025.
I think the key issue here is that companies like Continental and Schaeffler are able to maintain a strong presence within the EU because they are expanding into areas where overheads and wages are lower and not instead of like some other companies. Emerging markets are going to do well because of these factors as this provides the means that companies need to remain profitable. I see that Continental have just bought the UK based company ASL Vision, which must help to put them well in the lead regarding 360-degree surround vision. Also Schaeffler are expanding, to the tune of €150 million, in India over the next three to four years expanding existing plants at Pune, Hosur and Vadodara whilst also building a green field plant at Savli, near Vadodara. Both companies appear to be following similar expansion plans and they all seem to be very shrewd moves, so we shall see.
Demand for European car is vary in different location, I believe Russia and Hungary both have a higher demand than other parts of EU. It is because Conti and their shareholder Schaeffler are both expanding their factories in these countries. With the lower wages in these region, production cost can be further lower, using a pricing strategy to attract clients is one of the ways out. Hope that EU will recover sooner otherwise Japanese and US brands will take this chance to raise its market share, thus more EU based auto companies going into rougher situation.
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