VW, Peugeot, Volvo highlight auto sector woes

Plunging profit at Volkswagen (VOWG.DE), slumping sales at PSA Peugeot Citroen (PEUP.PA) and job cuts by Volvo (VOLVb.ST) on Wednesday highlighted the dire state of Europe's automotive industry.

But markets welcomed steps being taken by some makers to counter the downturn, such as Volkswagen's move to conserve cash and Swedish truckmaker Volvo's quest for savings by shedding staff.

Volkswagen shares gained 0.6 percent while Volvo stock jumped 9.3 percent.

Elsewhere the British government said it plans a scheme to give motorists a 2,000 pound ($2,914) discount on buying a new car when trading in one more than 10 years old.

Daimler AG (DAIGn.DE) Chief Executive Dieter Zetsche told Capital magazine there was a greater than 50 percent chance the company would sell its remaining stake in Chrysler this year.

And U.S. financial investor Cerberus CBS.UL, majority owner of Chrysler, has no interest in taking a stake in General Motors' (GM.N) German unit Opel, a source close to the situation told Reuters.

Volkswagen, Europe's biggest carmaVW, Peugeot, Volvo highlight auto sector woesker, kept in the black with a first-quarter operating profit down 76 percent to 312 million euros ($403 million), after including 600 million from the sale of its Brazilian heavy truck business to MAN AG (MANG.DE).

Cash in its automotive division rose 34 percent to 10.7 billion euros as of the end of March, from 8.0 billion at the end of December, as the carmaker slashed investment.

There is no other company in the industry that performs better in this market than Volkswagen, said Credit Suisse analyst Arndt Ellinghorst.

PEUGEOT UNDERPERFORMS

PSA Peugeot Citroen shares underperformed the market as it posted a 25 percent drop in first-quarter revenue to 11.0 billion euros and confirmed it expected a loss in 2009.

The French carmaker's shares dropped 1.2 percent, while the CAC-40 index .FCHI was 1.7 percent higher and the DJ Stoxx European autos index .SXAP rose 2.6 percent.

Finance Director Isabel Marey-Semper told analysts the fourth quarter of 2009 would be very difficult.

Although incentives to scrap cars in some European countries -- especially France and Germany -- had a positive impact on sales, the overall outlook remains volatile, with limited visibility at this stage, Peugeot said.

Passenger car sales fell 17.2 percent across Europe in the first quarter to 3.44 million vehicles, industry association ACEA said last week, though in March there were increases in some markets where governments have introduced cash bonus schemes for drivers trading in old cars for new car sales rose 40 percent in Germany, France was up 8 percent and Italy edged up 0.2 percent.

The question is really how the scrapping schemes in European countries are going to finish. The market will adjust at that moment either up or down, and that will affect how it evolves in 2010, said Natixis Securities analyst Georges Dieng.

In a further sign of the sector's woes, world number two truck maker Volvo said it would cut more than 1,500 jobs or 1.5 percent of the total, on top of the thousands of staff the company is already laying off to adjust to plummeting demand.

Elsewhere Volkswagen's premium brand Audi said it would postpone any decision to build vehicles in the United States as it pledged to invest around 300 million euros in the Seat plant in Martorell, Spain, where it plans to begin building the Q3 compact sport utility vehicle in 2011.

In Asia, China's ministry of commerce said it would expand a subsidy scheme to encourage the replacement of old cars and buses.