• Emerging markets now account for nearly half of global car production (measured in units produced, not sales value) and should be a strong growth driver in 2010E, more than compensating for the “hangover” from expired scrapping incentives in Europe.
• Reduced under-absorption of fixed costs, as scrapping incentives during 2009 reduced inventories for OEMs. Inventories are still below normal levels and we expect further rebuilding during H1 2010E, which, combined with higher demand for new cars, should lead to much improved capacity utilisation in 2010E.
• Heavy cost cutting ... at an early stage should yield strong positive operating leverage from a quicker and stronger than expected recovery for car production this year.
• A positive mix boost to EBIT from an uptick in demand from premium and large cars, for which sales were hurt in 2009 by scrapping incentives favouring smaller and more fuel-efficient cars.
Click on charts to enlarge, courtesy of Nordea Markets.