Bleak sales forecasts at Paris motor show

PARIS -- The auto industry's gloom is spreading beyond the U.S. and Western Europe to emerging markets that have been providing auto makers with key sources of growth.

The latest hot spot to cool off: Russia.

Industry leaders gathered here for the biannual Paris Motor Show warned Thursday that growth now appears to be moderating in Russia, hurt by tightening credit in that country.

While Russian auto sales are likely to continue rising, auto makers are "not going to continue seeing growth rates of 25% to 35%" as they have in the past, General Motors Corp. Chief Operating Officer Frederick "Fritz" Henderson said.

This year, Russia was expected to overtake Germany as the single-largest car market in Europe. But it seems to be feeling the impact of the financial crisis that has seen the collapse of some of the world's big-name banks. Moscow's stock market has remained closed for days at a time recently.

Slower-than-expected growth in Russia would compound the troubles facing the global auto industry. Both the U.S. and Western European markets are in profound slumps. In September, U.S. sales of cars and light trucks fell 26% to 964,873. It was the first time since 1993 that auto makers' total U.S. sales were below one million vehicles. Europe has also suffered big declines in recent months.

The outlook in the U.S. has darkened further because of Wall Street's financial crisis.

In an interview at the Paris show, Ford Motor Co. Chief Executive Alan Mulally said he thinks the U.S. economic slowdown will be "deeper and longer" than what people previously expected.

The gloom at the Paris show overshadowed presentations of many new innovative automobiles. France's Renault SA unveiled a concept for car, called the Fluence, that it plans to offer as an electric vehicle by 2010. Toyota Motor Corp. showed a car that measures just three meters in length yet still has room for four passengers. Called the iQ, it is due in Europe in 2009. Toyota eventually hopes to sell 80,000 of them a year.

Until this year, countries like Russia, China and India have served as safe havens for the world's major auto makers, generating growth and profits that helped offset difficulties in mature markets.

But now even these markets are showing signs of weakness. In August, auto sales actually declined in China and India. For China, it was the first decline in monthly sales in more than two years.

Mr. Mulally said slowing global sales will crimp auto makers' revenue at a time when many are struggling to make profits. "It makes it harder for everybody," he said. "It means you have to continue taking action on the cost side."

Ford lost $8.7 billion in the second quarter, and is expected to report another significant loss in the third quarter. Despite Ford's problems, Mr. Mulally said a filing for bankruptcy-court protection "is not in our consideration."

Ford "is going to keep restructuring for lower demand" and has ample financing "in place," he explained.

Industry watchers have been saying for months that the slowdown probably will last the rest of this year and nearly all of next, but even that scenario may be optimistic.

European September sales data, expected in the middle of October, likely also will register another double-digit decline, following on from a 15.7% drop in August. Individual countries will report figures before then and those numbers may give an indication of the current trend. U.K. data are due to be released Monday, and some executives predict a fall in sales of about 20%.

"For the first eight months of 2008 we had improved sales," said Norbert Reithofer, chief executive of BMW AG. "Then in September something happened."

He predicted the credit crisis in the U.S. eventually will affect residual values of secondhand cars in Europe. Deteriorating residual values in the U.S. forced BMW in August to revise downward its profit targets for 2008. In the second quarter, BMW booked a charge of €459 million ($643 million) related mainly to its leasing business in North America, following a €236 million charge in the first quarter. "We will have a problem with residual values in Europe, but not in the same dimension as the U.S.," Mr. Reithofer said in an interview.