France Autos Report Q1 2008

Passenger car production is set to fall to 2.19mn units in France in 2007, according to BMI's France Automotives Report. Industry data relating to the period January-September 2007 reveals a significant downturn on the same period a year earlier, prompting us to lower our forecast for the year. In BMI's view, the downturn represents the ongoing challenges facing French carmakers whose vehicles are sold on the domestic and stagnant Western European markets. Indeed, the most significant industry developments relating to the leading carmakers the PSA Group and Renault are concerned with their plans to exploit growth in emerging markets such as Latin America.

According to data from the French carmakers' association, CCFA, during the period January-September 2007 passenger car production fell significantly by 11.1% year-on-year (y-o-y) to 1.64mn units. As such, BMI has lowered its full-year forecast for this item to 2.19mn units. We have also adjusted our forecast for production up to 2012 to take into consideration the losses reported in 2006 and 2007. Going forward, BMI expects French autos majors to move some production capacity from France to Eastern Europe, with output in countries such as Slovenia and Slovakia expected to rise to accommodate a projected increase in demand in West European markets.

Indeed, France's new car market has enjoyed only limited growth in 2007. According to industry data, during the 11-month period to November passenger car sales totalled 1,881,995 units, up by 1.7% y-o-y.

The combined force of the PSA Group led the market, with sales of 578,272 units, a 1.3% increase on the same period a year earlier. Second-ranked Renault saw its sales fall by 6.6% y-o-y to 409,000 units.

Volkswagen completed the top three, with sales of 130,289 units. BMI is forecasting sales of 2.05mn units for 2007.

Significant industry developments in H207 relate to the ventures of Peugeot Citron and Renault in emerging markets such as Latin America. Peugeot Citron has earmarked investment of EUR365mn (US$500mn) in order to boost capacity and sales in the Mercosur region. According to company sources, the majority of the investment will be injected into the carmaker's existing plants in Argentina and Brazil.

Renault, for its part, is banking on the new Sandero model to achieve sale growth in Brazil and Argentina, two key markets in Latin America.