PARIS -- French carmakers PSA Peugeot Citroen and Renault said on Wednesday an ever-rising euro was weighing on profit margins, and PSA warned it would be tough to hit its full-year targets.
"The economic and monetary context is not favorable, and in these conditions reaching our targets will be difficult," PSA Chairman Jean-Martin Folz told shareholders at their annual meeting, adding that the carmaker would still do its utmost to achieve them.
His counterpart at Renault, Louis Schweitzer, told Reuters separately that the euro's strength against the British pound was clearly hurting margins, though he stuck to a full-year forecast that the company would be able to maintain a stable operating margin.
RELIABLE PSA TO STALL?
PSA has hit its targets every year since Folz took the helm in 1998 and carved out a reputation for the firm as Europe's most reliable mass carmaker, thanks in part to its minimal exposure to the U.S. dollar.
But recently analysts have started worrying that PSA may miss its targets as the strength of the euro versus the pound and Latin currencies bites into profit margins and as demand in its key western European markets wanes.
Last month the company confirmed a 2003 target of boosting operating profit to three billion euros ($3.5 billion) but said that maintaining the operating margin in its autos division at 5.0-5.2 percent, the same as last year, would not be easy.
Renault's Schweitzer told Reuters on the sidelines of a World Magazine Conference in Paris that Renault was not revising down its forecasts despite euro strength.
"What's clear is that the fall of the British pound (versus the euro) has an impact on margins," he said, adding that euro strength against the Japanese yen worked in Renault's favor.
"I am not going to correct the forecast already given," he added when asked about the impact on the firm's operating margin.
Analysts are divided on whether Renault will reach its goal of an operating margin stable at around four percent in 2003, with some fretting that skidding sales in Europe will make life just as tough for them as for PSA.
J.P. Morgan analyst Himanshu Patel said in a recent research note that he was cutting earnings estimates on both PSA and Renault to reflect sterling weakness and slack demand in Europe, adding he expected both firms to miss their own margin targets.
German carmakers Volkswagen and DaimlerChrysler are more exposed to the dollar because they are banking on sales in the key U.S. market to make up for sliding demand at home.
But some analysts say that although PSA and Renault do not sell cars in the United States, investors have underestimated the potential impact of a weaker British pound and shaky Latin American currencies on earnings.