Automobiles
Speculative opportunity
Global automakers are under stress with collapsing volumes and negative
cashflows. We think governments will prevent European OEMs from failing.
Despite forecasting losses for all covered OEMs bar VW and Porsche, we keep
Porsche and Fiat BMW at Buy, and upgrade PSA to Buy and Daimler to Hold.
Table 1 : Key recommendations & forecasts
Reuters Year end
Closing
Price Old Rec New Rec
Old
target
price
New
target
price
EPS
1fcst
PE
1fcst
Daimler DAI.F Dec-08 26.9 Sell Hold 17.00 25.00 3.05 8.81
Fiat SpA FIA.MI Dec-08 5.5 Buy Buy 10.00 8.00 1.66 3.28
Peugeot PEUP.PA Dec-08 14.6 Hold Buy 18.00 18.00 0.74 19.70
Renault RENA.PA Dec-08 20.4 Hold Hold 22.00 22.00 6.82 3.00
Volkswagen VOWG.DE Dec-08 260.0 Sell Sell 80.00 60.00 10.50 24.70
BMW BMWG.DE Dec-08 22.2 Buy Buy 33.00 30.00 1.91 11.60
Porsche PSHG_p.DE Jun-08 54.0 Buy Buy 90.00 70.00 23.30 2.32
Source: Company data, ABN AMRO forecasts
Buy the trough in sentiment
Auto stocks trade on newsflow, in our view, meaning the optimum time to invest is when
sentiment is at its trough. Whilst there is a grave lack of visibility and we would not forecast
growing car sales any time soon, we suggest that the rate of auto sales decline could
moderate during the course of the year. Companies are adjusting production as rapidly as
possible to limit cash burn. European governments are concerned about maintaining OEM
employment and may act to stimulate demand.
Be very clear – these are speculative trades
Investing at the nadir of sentiment is only wise if one has confidence that the company is not
going to fail. On the basis of our financial analysis alone, this is not something we can say
with any confidence for the OEMs. Looking at the negative cash burn forecast for 2009 and
2010 and the bonds falling due for repayment, we anticipate most of the companies will need
to raise significant new liquidity to maintain minimum cash reserves. In the current credit
environment, their ability to do so is not guaranteed, even though they are currently
accessing funding. Investing in the OEMs therefore requires a leap of faith that credit
markets will improve or governments will ensure sufficient liquidity is made available. As a
political judgement we do not think this unreasonable, but it is far from certain.
As pairs we would advise long Fiat or PSA, short Renault
At the risk of being stale Bulls, we remain Buyers of Fiat: Brazil and Iveco are plainly
challenged, but we expect the company to undertake some form of transaction to crystallise
value in its asset portfolio. With our forecast of losses for PSA in 2009 and 2010, we think
our estimates are grounded and believe that, as and when the industry consolidates, its
product portfolio has to be attractive. We see Renault as less well placed for consolidation.

Contents
Speculative opportunity? 3
We maintain Buys on BMW, Porsche and Fiat and upgrade PSA from Hold to Buy.
We also upgrade Daimler from Sell to Hold. There is a grave lack of visibility and
the OEMs’ ability to secure funding is not clear. However, politically, we doubt
governments will let them fail.
Selective optimism 3
Diversification looks attractive 5
We forecast a 14% fall in 2009F global sales 8
Our revised market forecast factors is a 14% fall in global sales in 2009, with North
America down 6%, Western Europe 16%, Eastern Europe 19% and Latin America
down 25%. We forecast only a modest recovery in 2010, with global volumes up 5%
year on year.
Market downturn forecasts to bottom in 2009F 10
Significant cash burn forecast across the industry 11
Cash conversion (€ k) and capex (% of sales) 14
Dividend payments: a luxury from history 15
Material costs and currency 15
Residual values 16
Financial services shrink 16
Valuation data 21
Company profiles
BMW 25
Daimler 27
Fiat SpA 29
Peugeot 31
Porsche 33
Renault 35
Volkswagen 37