European car makers face big scrap charges - report
LONDON - Europes car industry will have to set aside billions of euros in charges against profits to meet new European Union recycling responsibilities, a report released on Monday said.
But vague E.U. legislation underpinning the measure might mean national governments could mitigate the impact on companies by offering tax relief.
The car makers are also likely to find a way of passing on the cost to consumers.
The charge for cars built before 2002 could amount to 1.3 billion euros ($1.21 billion) for Germanys Volkswagen AG, 800 million euros each for Frances PSA Peugeot Citroen and Renault, and Fiat SpA of Italy, the report published by Schroder Salomon Smith Barney said.
DaimlerChrysler would have to set aside 380 million euros and BMW AG 250 million, the report said. It said the figures were on a worst-case basis.
In Frankfurt, BMW said on Monday it was still studying the implications of the directive and declined to say whether it would make further financial provisions after earmarking 250 million marks ($119 million) for 1999.
Volkswagen declined to comment on the size of its possible provision.
DaimlerChrysler said it would announce what amount it would put aside at its annual press conference on February 26, when it will also present an overhaul plan for its ailing Chrysler unit.
SSSB said in the report the average cost of recycling cars in Europe was about 180 euros. About 12 million cars are scrapped a year.
Provision for cars built after 2002 will be taken care of by an annual charge against profits for each vehicle at the time of sale, the report said.
COSTS HIT IN 2007
John Lawson, SSSB auto analyst and author of the report, told Reuters annual charges, equivalent to about three percent of sales, will reduce operating margins, but wont be turned into an actual cost until 2007, when the new law takes effect.
The hit will be taken across the board by all manufacturers, with the companies with the biggest sales suffering most.
The European Unions End of Life Vehicle Directive was signed by the European Parliament and European Council of Ministers in September 2000. Member states must ratify the measure, which will probably take until the end of 2001, SSSB said.
The measure shifts the responsibility for recycling to vehicle makers from owners with effect from January 1, 2007. Tougher measures kick in in 2015.
According to European Automobile Manufacturers Association spokesman Hans-Martin Lent-Philipps in Brussels, the measure is loosely worded, calling on manufacturers to take an "important" part of the recycling burden. The legislation doesnt define "important".
Despite the size of the numbers involved, SSSBs Lawson is sanguine about the impact of the provisions.
RELATIVELY MINOR IMPACT
"We suspect it will have a relatively minor impact on the valuation of companies. We dont think investors will be unduly worried about it and will probably assume that the cost of this will passed on to consumers," he told Reuters.
The report was sent to SSSB clients late last month and released on Monday.
Depending on national governments, the payments might qualify for tax relief. The report said the German government appeared sympathetic to tax relief.
There was also a possibility that car dealers, suppliers or customers might share some of the costs, according to SSSB.
Story by Neil Winton, European Auto Correspondent
REUTERS NEWS SERVICE
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