Volvo, parts firms post losses, see recovery in 2010

STOCKHOLM/PARIS (Reuters) - Auto industry manufacturers delivered more gloomy news on Tuesday, racking up bigger-than-expected losses and warning of a slow climb toward recovery, which they see unlikely before 2010.

World number two truck manufacturer Volvo (VOLVb.ST), whose chief executive said the global sector downturn was the worst ever, skidded to a hefty operating loss and stuck to its forecast that recession would cause its main markets in the United States and Europe to shrivel this year.

Swedish parts maker Autoliv forecast a 20 to 25 percent decline in third quarter sales and French peer Faurecia said it would slash costs further than it had planned as cash bottlenecks that have dogged the industry also impacted Continental AG, which looked to be planning a capital hike. [nN20120809] [nLL714676] [nLL479184].

But hopes the market could bottom out before the end of 2009 were boosted as Volvo said it would reach the low point in its production cycle in the third quarter and Autoliv forecast positive cash flow for the full year.

"These are ugly times and investors must be patient. But the key signs of recovery are there," said Morgan Stanley analyst Adam Jonas about the sector in a note on Faurecia.

"We have never seen a combined world market coming down like this," said Volvo Chief Executive Leif Johansson, while looking toward "better cash flow and better results as we move out in a couple of quarters from here."

The Swedish firm's operating loss was a steeper-than-expected 6.9 billion crowns ($886 million), down from a record 7.2 billion profit a year ago.

But in contrast to some others in the sector, it successfully cut inventories and slowed the drain of cash.

"I think that market expectations were for a much more negative cash flow," Handelsbanken analyst Hampus Engellau said.

At 1305 GMT, Volvo shares were up 1.42 percent.

Cash woes continued to weigh on Continental, with sources saying CEO Thomas Neumann plans to give the heavily indebted company room for manoeuvre by seeking boardroom approval for a capital hike. Financial Times Deutschland said the cash call could amount to 1 billion euros ($1.42 billion).

The German auto supplier, whose shares fell 3.61 percent, declined to comment.

Faurecia (EPED.PA), which is 71 percent owned by carmaker PSA Peugeot Citroen (PEUP.PA), raised its cost-cutting target by 100 million euros and targeted operating income close to breakeven in the second half. However, it also forecast sales would drop 10 percent in Europe and 35 percent in North America.

An unprecedented fall in auto production pushed the French firm to a first-half operating loss of 187 million euros.

"We feel that the recovery in 2010 will be very slow, and very gradual," Chief Executive Yann Delabriere told BFM radio.

Autoliv (ALIVsdb.ST), the world no. 1 air bag and seat belt maker, gave a more encouraging picture, beating expectations with a second-quarter pretax loss of $28 million and forecasting positive cash flow for the full year, though minus restructuring costs seen at $20 million in the third quarter.

Faurecia fell 1.8 percent and Autoliv leapt 9 percent.

In Germany, neither the Opel takeover saga or the ownership battle between Porsche (PSHG_p.DE) and Volkswagen (VOWG.DE) showed signs of a swift resolution.

Sueddeutsche Zeitung cited sources close to Porsche's supervisory board as saying any deal to sell Porsche's sportscar business to VW could be scuppered by potential tax liabilities of 3 billion euros, knocking both companies' shares.

A government source said a meeting on Wednesday between Opel's U.S. parent General Motors and German government officials would not yield a decision on a winning bidder. [nBAT003079]

In Moscow, PricewaterhouseCoopers urged action from the Russian government, saying sales of new and used cars in the country could plummet 60 percent by year-end in the absence of state intervention for the sector.

The DJ Stoxx auto sector was up 3.09 percent, outperforming the overall market.

($1=.7063 euros)

($1=7.790 Swedish crowns)

(Additional reporting by Anna Ringstrom, Marilyn Gerlach, Madeline Chambers, Gleb Stolyarov; writing by John Stonestreet; editing by Mike Nesbit and Elaine Hardcastle)