Europe’s Carmakers Fall on Chinese Manufacturing Decline

Volkswagen AG (VOW) (VOW), PSA Peugeot Citroen (UG) and Renault SA (RNO) (RNO), Europe's three largest carmakers, all dropped 5 percent or more after preliminary data showed Chinese manufacturing is unexpectedly contracting.

Peugeot declined as much as 7.5 percent, VW fell as much as 5.3 percent and Renault lost as much as 5.1 percent after the figures indicated manufacturing in the country is shrinking in May for the first time in seven months.

The preliminary reading of 49.6 for a Purchasing Managers' Index released today by HSBC Holdings Plc and Markit Economics compares with a final 50.4 for April. The number was also below the 50.4 median estimate in a Bloomberg News survey of 13 analysts. A reading above 50 indicates expansion.

Europe's automakers are banking on continued gains in China, the world's biggest car market, to help offset plunging demand in their home region, where deliveries are at a 20-year low. The manufacturing drop adds to signs that economic growth in China is losing steam for a second straight quarter.

"China economic data was weaker and raises concern about a possible slowdown in car demand," said Juergen Pieper, a Frankfurt-based automotive analyst with Bankhaus Metzler. "Automakers have a lot to lose in China, not only from a sales volume perspective, but also because they earn above-average profit margins there."

Peugeot dropped as much as 55 cents to 6.83 euros and traded 5.9 percent lower as of 11:20 a.m. in Paris. Renault was down 4.3 percent and VW was 3.5 percent lower. Bayerische Motoren Werke AG (BMW) was down 3.5 percent and Daimler AG (DAI) was 4.7 percent lower.

China Growth

Passenger-vehicle demand in China has surged by an average of 25 percent annually since 2006, according to Kevin Tynan, an auto analyst for Bloomberg Industries. In Europe, deliveries are set to decline for a sixth straight year in 2013.

VW increased sales in the China 25 percent last year to 2.84 million vehicles, accou! nting for 31 percent of its global total. The country became VW's single biggest market in 2009.

China's growth unexpectedly slowed to 7.7 percent in the first quarter while remaining above the government's full-year target of 7.5 percent. Data earlier this month on fixed-asset investment and factory production missed forecasts and gauges of manufacturing and service industries declined. The economy expanded 7.8 percent in 2012, the slowest pace in 13 years.