Equity investors are supposed to stay away from many European auto firms this year due to the problems of persistent overcapacity to poor demand which weakens confidence, even though the exceptional car segment has capability to shine.
Assessments of automobile companies have reduced with a drop in equity prices, but are still higher in other sectors. A possible decline in earnings evaluation might increase the price-to-earnings ratio, which makes the stocks very expensive.
The Europe 600 Automobiles and Parts index interchanges 19 times its one-year progressive earnings, when compared with 10 times for the oil and gas sector, 11 times for banks, 12 times for basic resources and 15 times for the technology sector .
The industry extremely requires restructuring, but political concerns like maintaining jobs at the time of economic crisis restrained companies working disruptively on that front. The auto sector is below 12 per cent, performing lower than other sectors like technology sector which increased six per cent, and food and beverages increased four per cent.
February car sales increased strongly in France, Italy and Spain as scrappage programs worked out, but European car makers face difficult times ahead as governments terminates incentives. Industry experts consider scrappage schemes less effective.
Investors had inclination for premium car makers like BMW. Analysts said that there has been an increase in global premium demand, provoked by more sales in China, in the starting of a recovery in the United States and recovery of banker bonuses.
Toyota’s recall of 8.5 million vehicles due to unrestrained acceleration and braking flaws has absolutely damaged its reputation for quality and led to lower sales.