Articles in Category: Company News

While General Motors and its European counterparts have been having some overcapacity problems in Europe, Volkswagen, Europe’s leading carmaker, is the shining star as far as Eurozone manufacturing — and sales success — goes.

VW reported record profits last week, amid speculation that the European auto market will contract once again in 2012 — the fifth consecutive year of contraction. Volkswagen’s profits doubled from the previous year to €15.4 billion ($20.6 billion), and revenue increased about 26 percent to €159 billion, according to this New York Times new hit.

In at least one way, it doesn’t matter to Volkswagen that the Eurozone is suffering: The company reported that its “two Chinese joint ventures, Shanghai Volkswagen and FAW-Volkswagen, together sold 2.26 million vehicles in 2011, up nearly 18 percent from 2010,” according to the article. Overall, the company broke the 8-million-vehicles-sold threshold for the first time, led by its VW and Audi brands; it clocked 8.27 million total sales.

While GM has been forced to begin talks with Peugot to cut costs (as my colleague Stuart reported on last week), VW seems to be sitting pretty with its extra stash of cash — but will the fuzzy feelings last for long?

The company has yet to fully report what happened in Q4 2011 for all ten of its brands — not just the high-flying Audi and VW marks — on March 12. A report in the Wall Street Journal maintains that 2012 will be a challenging year for all automakers, not just because of the down Eurozone economy (Moody’s forecast sees a 6.2 percent decline in 2012 y-o-y).

While the article quotes a Morgan Stanley analyst as saying that only VW and Hyundai should be profitable in 2012, a separate report indicates China’s not buying cars like it used to — auto sales fell 24 percent in the wake of the Lunar New Year, but potentially more worrisome, rose only 2.5 percent in 2011 to 18.5 million, according to the China Association of Automobile Manufacturers (CAAM).

Interestingly, VW may stand to gain a bit of a cash infusion from the European Central Bank (ECB) in the form of cheap loans to boost the Euro auto industry, according to BusinessWeek. (Peugot is also in line for the handout, but arguably, they need it much more.) In an interview, Stefan Rolf, VW’s head of securitization, said that the company is “considering accessing the LTRO” — an ECB program that is a cheaper source of cash than selling bonds.

Looks like even VW is hedging against another global downturn any way it can.

Continued from Part One.

In another twist to the tale, a report in the FT says GM seems to be at an advanced stage of discussions with France’s Peugeot, also a struggling carmaker with excess capacity, to jointly develop engines, transmission systems and entire vehicles that would be sold under their respective brands. While this could have design and production cost savings, it would really only make sense if between them they closed excess production capacity.

While no shares will change hands in the proposed cooperation between GM and Peugeot, it has similarities to Chrysler’s cooperation with and later 53.5-percent takeover by Italy’s Fiat, the loss-making carmaker that owns the Lancia and Alfa Romeo brands in addition to Fiat. That merger could be said to be timely for Fiat, as the combined company reported a small net profit for 2011 and projected $1.5 to 2 billion net profit for 2012, largely on the back of a resurgent North American market for Chrysler brands.

On the other side of the coin, Tata’s Jaguar Land Rover (JLR) has been investing something like $1 billion per year for the last few years and is set to double this next year as it expands production in the UK and overseas, and takes on more staff to meet record demand. Tata Motors bought Jaguar Land Rover from Ford in 2008, for £1.5 billion, in a move some derided as a mistake. Last year, JLR made a profit of £1.1 billion and this year’s profits are expected to be even higher still.

GM probably missed the boat in selling its European operations back in 2009.

Who would buy them in today’s market is unclear. GM could still make the operations profitable; they have great research and design resources and some plants that are highly efficient. Arguably, in a world where smaller cars are likely to be a long-term trend, a European design and production base is a strategic asset that could be of considerable benefit to the global GM corporate.

However, GM as a group will not be willing to carry the cost of a loss-making European division for long, and unpopular as it will be among European governments and unions, plants are going to have to close.

Europe’s car companies could be said to mirror the European economies in the sense that there’s a stark contrast between the haves and have-nots, or between the profitable and the loss-making.

Unlike the US, where all carmakers were pulled down post-2008 and some teetered on the edge of bankruptcy while others actually went into Chapter 11, European carmakers are much more of a mixed bag. And before I get comments about government subsidies, let me say this: while they have over the years detrimentally impacted the structure of the European car industry, today’s winners and losers do not split neatly down the line between beneficiaries of state largesse and not.

In stark contrast to its parent, now (free of onerous pension obligations and high union pay rates) a highly profitable enterprise, General Motors’ European operations (which includes Vauxhall in the UK and Opel in Germany) lost $747 million last year, with $562 million of that coming in the final quarter of the year and including a restructuring charge of $200 million.

It has lost money in Europe for a decade, but targeted breaking even in 2011 as talks broke down to sell the business to Magna a year back. Even so, the loss is a marked improvement from the $2 billion deficit in 2010, the Telegraph reports, but is in stark contrast to a year of record global profits for GM group, where profits surged to $9.19 billion from $6.17 billion.

Perversely, GM’s rescue plan may include the closure of Europe’s most efficient car-making plant, Ellesmere Port in the UK, because GM is prevented from closing German plants until 2014 due to union agreements — even though the Bochum plant in Germany, which has a capacity of 160,000 cars but is said to need 3,100 employees to operate, compared to Ellesmere’s 187,000 capacity with only 2,100 employees.

Continued in Part Two.

India’s biggest blast furnace would be made operational at the Orissa based Rourkela Steel Plant (RSP) by the end of July this year, according to the Hindu Business Line. The announcement was made by Chandra Sekhar Verma, the Chairman of Steel Authority of India (SAIL). Indian news agency PTI quoted Verma as saying that the country’s biggest blast furnace having a 4,060-meter cube would be operational at the RSP in June-July.

According to the report published in Business Line, during a meeting with the state’s Chief Minister Naveen Patnaik, the SAIL chairman said that the expansion and modernization work at RSP will be completed much before the scheduled time frame.

SAIL is spending about Rs 120 billion ($2.4 billion) on the modernization of RSP, with a target to take its production capacity of hot metal to as high as 4.5 million metric tons from its existing capacity of 2 million tons.

The capacity of the RSP would be increased from 2 million to 4.5 million tons per year and later to 5 million tons per year, Verma was quoted as saying. RSP modernization is part of SAIL’s plan for expanding capacity in its existing major plants. All together, SAIL has decided to pump in Rs 720 billion ($14.4 billion) to raise production from 14 million tons to 24 million tons per year by the end of 2013.

SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India.

As per the plans, all modernization and expansion work would be completed in a phased manner in all SAIL’s steel plants; the company seeks to raise its capacity to 40-60 million tons per year after eight years, as per its 2020 vision document.

Out of Rs 720 billion ($14.4 billion), an amount of Rs 105 billion ($2.1 billion) would be spent in the Raw Material Division (RMD), while Rs 560 billion ($11.2 billion) will be spent on purchasing machinery for expanding and modernizing units.

RSP, the first integrated steel plant in the public sector in India, was set up by SAIL with German collaboration with an installed capacity of 1 million metric tons. Subsequently, its capacity was enhanced to about 2 million tons.

The plant was modernized in the mid-1990s with a number of new units having state-of-the-art facilities. Most of the old units were also revamped for effecting substantial improvement in the quality of products, reducing cost and ensuring a cleaner environment.

RSP was the first plant in India to incorporate LD technology in steel-making. It is also the first steel plant in SAIL and the only current one where 100 percent of slabs are produced through the cost-effective and quality-centric continuous casting route.

RSP currently has the capacity to produce 2 million tons of hot metal, 1.9 million tons of crude steel and 1.67 million tons of saleable steel. It is SAIL’s only plant that produces silicon steels for the power sector, high quality pipes for the oil & gas sector and tin plates for the packaging industry. Its wide and sophisticated product range includes various flat, tubular and coated products.

TC Malhotra contributes to MetalMiner from New Delhi.

Maybe it would be unkind to suggest Boeing will be reading the developing story of Airbus’ A380 wing-crack problems with glee — all airlines suffer issues of this type at some time — but rarely has Boeing and Airbus’ rivalry been so intense, or the counter claims of government subsidies been so bitter. Nevertheless, Airbus has moved swiftly to minimize the PR damage, ensuring plenty of information was made available regarding the nature, extent and solution to the cracking issue.

For anyone not following the unfolding events, it started back in November when the Rolls Royce engine on a Qantas A380 failed rather spectacularly in mid-flight, sending shrapnel through the wings. According to the Telegraph, subsequent inspections during the repair process showed the presence of tiny cracks in an L-shaped bracket that connects the wing’s exterior to the internal “rib” structure.

Last month the European Aviation Safety Agency (EASA) ordered checks on 20 of the most heavily used A380s. Those checks showed the problem was more widespread, also affecting the other end of the bracket, which has vertical flanges that connect to the wing spar, prompting EASA to order all 68 A380s in service to undergo detailed inspection using high-frequency electric currents over the next few weeks.

There is no suggestion the planes are not safe to fly, and Airbus has stated the parts in question are not main load-bearing components; nevertheless, they can do without bad press on an aircraft that cost nearly $20 billion to bring to market and is not expected to make a profit before mid-decade.

Source: The Telegraph

So what exactly is the problem?

Well, the cracks, some of which are up to 2 centimeters in length (nearly 1 inch), seem to be limited to both the upper and lower edges of the brackets that connect the external skin to the central spars. The brackets have L-shaped feet, and it is at the point of connection between these feet and the skin that some brackets have begun to crack. The occurrence of cracks is not uniform on the same ribs on different aircraft, nor are they to the same extent on aircraft of the same age; the cracking is more random than that, suggesting it’s a result of problems in the assembly process, compounded by the selection of aluminum alloy used.

Each A380 wing has 2,000 such feet distributed over 62 ribs – 38 metallic and 24 carbon composite. Apparently the wing panels, some of the longest in use on any aircraft, are creep-formed to the desired contour of the wing surface at the location they will be fastened to. The rib feet at the top of the structure are designed knowing they will be in compression during actual service. The rib feet on the bottom of the structure are said to be designed to be in tension.

EADS who purchased the division from BAE Systems some time ago, make the wings in the UK as part of the Airbus consortium. The firm says the finishing of the holes, the application of the fasteners, and the less flexible nature of the 7449 T7651 alloy used, have all contributed to undue stresses in the area of the bond. The firm has a repair kit for planes in service and is working on a change in design and assembly to avoid the problem on new aircraft.

The wings, at 262-foot spans, are some of the largest of any commercial airliner, so maybe it was naïve to think that every conceivable issue was going to be computed in advance of service on such a pioneering design. But at 544 tons and capable of carrying up to 853 passengers in an all-economy configuration, airlines and their clients can be excused for demanding a comprehensive and lasting solution.

MetalMiner Site Update

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Good morning, MetalMiner readers!

We’re happy to announce a brand-new update to our site — which you’ve undoubtedly noticed already. MetalMiner is trying to bring you the same great content in an even more user-friendly package.

As you’ll continue navigating MetalMiner, you’ll notice several new features (such as the Events calendar) that will make your experience on the site (we hope) even more valuable.

For now, some of the pages for our upcoming conference — Commodity EDGE: Sourcing Intelligence for a New Normal — are missing the most up-to-date information. We’re working quickly to have it restored as soon as possible. Also, the historical reporting function on the free version of the MetalMiner IndX will be temporarily unavailable (for about a week). You can still access the day’s current prices. We apologize for the inconvenience, and will get these back up and running as soon as possible.

Thank you!

–The MetalMiner Team

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