Global auto slowdown may add to carmaker woes

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Automakers have all but written off a recovery in the US market, the largest in the world, until 2010.

Now for the really bad news: The US economic malaise has spread to other key markets, including Europe, killing hope international demand could help offset deep losses in North America.

That prospect lands heaviest on the US-based automakers General Motors Corp and Ford Motor Co, which have relied in on strength overseas to make up for market share losses and financial straits at home.

The doom and gloom in the US market was reflected in September auto sales, which fell below 1 million for the first time since 1993 amid the severe credit crunch that has rocked US consumer confidence, especially in the last 10 days of the month.

With the ripples from the US credit crisis now putting pressure on the world economy, US automakers may be forced to cut costs in Europe and emerging markets such as Russia and China that are slowing, analysts and industry executives said.

"One of the safe spots for GM and Ford was their ability to make money overseas to help offset some of the problems here at home," said Erich Merkle, an analyst with Crowe Horwath. "As we go through this year and next, they are not going to be able to count on that."

Merkle forecast that US automakers may cut production in overseas markets to align costs with lower demand and may have to scale back growth plans in emerging markets such as Russia.

If European volume falls a further 10 per cent with a slowdown in emerging markets, Morgan Stanley would expect most auto companies to lose money and burn cash, analyst Adam Jonas said.

With sales sagging in the United States, Detroit-based automakers have in the past few years relied on overseas markets for profits as they restructure at home.

But GM and Ford executives speaking at the Paris Auto Show warned of tough times ahead in the global market that could force production cuts and job losses.

GM Chief Operating Officer Fritz Henderson spoke of concerns about Western Europe, while Ford Chief Executive Alan Mulally expected no recovery in the global car market until 2010.