UPDATE 1-Credit Suisse downgrades European auto sector
July 2 (Reuters) - Credit Suisse downgraded European auto sector to "market weight" from "overweight," and warned of increasing risk to automakers' cash flows in the first half of 2010 as retail volumes and price support from scrappage schemes fade.
Uncertainty surrounding the potential overhang of scrappage schemes -- a government scheme to help automakers by encouraging drivers to trade in old cars for new -- will be a major concern for investors during the second half of 2009, said Credit Suisse analysts, including Stuart Pearson and Arndt Ellinghorst.
The scrappage incentive schemes may have eased cash burn in 2009, but there will clearly be a price to pay when these schemes end, they said.
"We anticipate significant disruption to European volume, price and mix as these schemes either expire, or their effects fade," the analysts said in a note to clients.
They also said automakers would need to fix their balance sheets through asset disposals and equity issuances, as working capital reversals alone might not be enough to restore balance-sheet strength.
They estimated Peugeot SA (PEUP.PA), Renault SA (RENA.PA) and Fiat SpA (FIA.MI) would need to raise between 1 billion euros and 3 billion euros each via equity and convertible issuance.
Credit Suisse analysts revised their price targets on European automakers and urged investors to use any sector strength to reduce weightings in the sector.
The DJ Stoxx European Autos Index .SXAP was down 2.6 percent at 214.85 by 0944 GMT on Thursday.
For related alerts, double lick [ID:nWNAB3946] (Reporting by Tenzin Pema in Bangalore; Editing by Gopakumar Warrier)
