High optimism at the start of the year, but
disappointments seem inevitable
At the beginning of the year, all European automobile manufacturers expressed
optimism on the trend of earnings they expected in the 2008 financial year. The order
situation is evidently very robust, apart from the problematical US market, and
demand continues to be very firm, especially in developing countries like China and
Russia. In addition, most of the companies we survey, particularly VW and Daimler,
are benefiting from sweeping restructuring measures implemented in the past two
years.
Nevertheless, it seems very unlikely to us that the uptrend will proceed at the same
pace at all seven producers. The statements of the companies are based essentially
on their expectations of appreciable growth in sales volumes, with all also expecting,
inter alia, to increase market shares. This can hardly be achieved by all the competing
companies, in our view. Moreover, there are early signs of a slackening in demand for
cars in some Western European markets (e.g. Italy, Spain). At most risk, we think, are
the expectations for sales and thus also for earnings of the French manufacturers – so
far this year, sales at both are likely to have fallen short of their projections. On the
other hand, the latest data for the first quarter and the quality of their product
pipelines bode well for a successful business year at Porsche, VW and BMW
especially.
Besides the likely sales performance, our focus in 2008 is on the financial condition
of the companies concerned. Here, too, the VW Group stands out – with a very high
net cash position of currently over EUR 14 bn and an estimated free cash flow of EUR 7
bn (Metzler estimates for 2008).
The most striking results of our valuation analysis are:
• On a discount to the general market (German as well as European) of about 15% in
terms of earnings multiples, the sector valuation is on average.
• We see Porsche shares in particular as on a very low valuation by historical
standards – the shares are being traded at virtually no premium over those of rival
producers.

INVESTMENT SUMMARY High optimism at the start of the year, but
disappointments seem inevitable................... 3
VALUATION Automakers much cheaper than general market –
corresponding to the historical standard ....... 4
INVESTMENT STORY Not all European automakers should attain
their targets in 2008 ........................................ 8
COMPANIES BMW.................................................................. 16
Daimler ............................................................. 28
Fiat .................................................................... 40
Peugeot............................................................. 52
Porsche ............................................................. 64
Renault.............................................................. 76
Volkswagen ...................................................... 88
DISCLOSURES ........................................................................... 100
GLOSSARY