Auto suppliers see tough times ahead

French tire manufacturer Michelin posted a drop in net profit but said it would benefit from lower raw material prices in 2009, while the net loss at parts supplier Valeo widened and it saw a tough year.
The results came amid new talk of consolidation in the auto parts sector and after overnight news of further North American cutbacks by world No. 1 automaker Toyota Motor Co and data showing European new car registrations dropped by more than a quarter last month..
Michelin Chief Executive Michel Rollier told a news conference on Friday he saw the first half of 2009 being "very difficult," in line with the second half of last year.
The group booked a 227 million euro ($293 million) charge in its 2008 accounts after it was forced to cut production in line with falling demand for cars.
But Michelin said raw material price decreases, as well as the price increases it implemented in 2008, would boost its profitability in 2009.
Valeo scrapped its dividend on Friday after posting a 207 million euro net loss and said it did not see the car industry crisis ending before 2011.
The groups' results were the latest in a wave of bad news for French auto industry players, which posted disappointing results as the car industry found itself in the full grip of an unprecedented, credit crunch-sparked sales crisis.
The depth of the slump was also reflected in the latest figures from European auto industry association ACEA which showed new car registrations dropped 27 percent in January in what was a dismal month for all carmakers in the region
We're driving in the fog, on black ice, with our foot off the accelerator," Valeo CEO Thierry Morin told a news conference. His salary will be cut to 1.1 million euros from more than 1.5 million, due to the crisis and after some criticism.
Michelin stock was 3.29 percent higher at 1220 GMT (7:20 a.m. EST), outperforming a 1.19 percent gain on the Dow Jones auto index. France's benchmark CAC 40 index was 2.35 percent firmer.
"Michelin is focused on improving its profitability and preserving its financial position," Merrill Lynch analyst Thomas Besson said in a note.
"Profitability should be supported by the full-year combined effect of the price increases passed in 2008 and the decline in raw materials prices, in particular for natural rubber and oil derivatives."
CRISIS CONSOLIDATION
As the likelihood of sector consolidation linked to the crisis was brought into focus with the news that China's Chery Automobile had approached several European brands, Michelin and Valeo both said they would watch developments closely.
Rollier said Michelin "would not be absent from the debate" on consolidation. But he declined to be drawn on whether the company was in discussions over a potential purchase of German rival Continental's tire division.
Valeo's Morin, meanwhile, said the group was not set on external growth, but added that he saw a "significant" need for consolidation in the sector.
"If at a certain moment we realize that certain equipment makers in difficulty had interesting skills, of course we will go and knock on their door," Morin saidUnder this scenario Morin could envisage calling on the government fund set up to help suppliers. The group said this morning its liquidity was intact at the end of 2008 and it had 1.2 billion euros in confirmed credit lines from major banks.
Michelin and Valeo said on Friday they would work together on the development of systems for electric and hybrid vehicles.
Renault on Thursday dropped its once sacrosanct 2009 targets after its 2008 net profit plunged.
PSA Peugeot Citroen said earlier this week it expected to remain in the red until 2010. And parts supplier Faurecia launched a 450 million euro capital increase on Tuesday after posting a widening net loss.
Elsewhere, German automotive parts supplier Leoni said it does not rule out a loss for 2009 though its chief executive told Reuters he was "not too pessimistic" for the current year.
The string of weak results followed an announcement by French President Nicolas Sarkozy of a massive state aid package, with controversial strings attached, for the struggling auto sector.
The EU on Friday outlined its possible concerns about the state support as Jean-Claude Juncker, chairman of euro zone finance ministers, warned France and Italy over protectionism.
Officials in Germany meanwhile were meeting on Friday to discuss General Motors' struggling Opel unit.