AM Online

Take tips from top ROCE dealers, equity analyst tells carmakers

MG Rover is unlikely to survive another 10 years in its current form, Ford of Europe must restructure urgently, and General Motors will remain reluctant to make its relationship with Fiat any more formal.

These gloomy predictions are the personal views of Max Warburton, global investment research executive director at Goldman Sachs. And speaking at the AM conference Putting Profit Before Turnover, the automotive sector equity analyst says other carmakers will face further difficulties.

“These won't be overnight – Rover shows you how slowly these things happen, but Longbridge will probably go,” he commented during a question and answer session at the conference. “It's very difficult to imagine Rover and Fiat still in their current form here in 10 years' time. And yes, there will be more casualties.”

He also claims that GM is “playing hardball” with the Fiat negotiations. “It appears they have made it clear to the Italians that they have no intention to merge Fiat into GM Europe,” says Warburton. Ford of Europe, he adds, is “pushing water uphill”. “The situation is one that can't be fixed with a hot product like C-Max. Restructuring is inevitable,” he says. Warburton compliments the top return on capital employed (ROCE) retailers on their financial performance, which is as high as 67 per cent. “These are very high levels of return,” he says, referring to the ROCE Top 20 listing published in AM, November 14. “They look pretty impressive compared with car- makers'. At eight per cent, BMW is just about level, while Renault and Volkswagen are not generating adequate return.”

And he says vehicle manufacturers should take note of the AM ROCE charts. “The equity market doesn't pay for sales growth. What the market wants to see is return on capital, creating value. With the exception of Porsche and some of the Asian brands, the level of return is just too low,” he concludes.

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