Luxury-Car Sales Surged in First Half

FRANKFURT - Germany's luxury-car makers posted record sales in the first half of the year and expect growth to continue in coming months, fueled by booming demand in emerging markets.

"We have just achieved another record month in sales and the best six months in our company's history," BMW AG sales chief Ian Robertson said in a statement Thursday.

However, he said the growth may moderate, and auto analysts said investors should take caution given the sector's high margins, reported The Wall Street Journal.

"Due to the model cycle and the year-on-year base effect, we do anticipate a somewhat slower rate of growth in the second half of the year," BMW's Mr. Robertson said, reiterating previous comments.

The premium-car segment staged a powerful comeback in recent quarters following a steep downturn as sales soared in China and a market recovery continued in the U.S.

BMW AG, the world's best-selling luxury-car maker, said its BMW brand posted a 12 percent rise in sales in June to 134,432 cars from 119,663 a year earlier.

Volkswagen AG's Audi unit overtook Daimler AG's Mercedes-Benz brand as the world's second-largest luxury car maker by sales volume in the first half.

"The first half of the year was clearly better than we had expected," said Audi sales chief Peter Schwarzenbauer. Audi's sales in June rose 19 percent to 117,650 cars from 99,263 a year earlier, and were up 18 percent in the first six months at 652,950 cars from 554,864.

Earlier this week, Mercedes-Benz posted sales of 610,531 cars, up 9.7 percent from 556,691 vehicles. The Stuttgart-based company, however, still generates more revenue per vehicle on average than its two larger German rivals.

Sanford Bernstein analyst Max Warburton cautioned in a recent note that "in general enthusiasm has waned" among investors. He added "most investors tell us we're naive to believe margins will remain at a high level and daft to argue for the possibility of re-rating."

He said the sector's history supports the cynics as "returns are infamously volatile and periods of decent profitability are usually brief." He said the sector's performance is highly correlated with earnings momentum and fundamental valuation is rarely discussed.

Profit margins among premium auto makers "are at historical highs, cash flows have never been better and balance sheets are strong," although valuations remained below long-term averages, said J.P. Morgan analyst Ranjit Unnithan.

"Clearly, one must assume that investors fear that there is something unsustainable about current margins and cash flows," he said.

The concerns could relate to general sales volumes, product mix and the vulnerability of margins in case China demand weakens, or to future investment demands, he said.

China played a key role for the sector's rebound as profit margins there are high and larger, more lucrative vehicles account for a large chunk of sales.

Mr. Warburton, however, believes the German premium car makers still have some upside potential despite a lackluster performance of the overall European auto sector so far this year.

The Euro Stoxx auto sector index has gained about 7 percent since the beginning of the year, which is only slightly better than the overall market after a stellar two-year period of outperformance in 2009 and 2010. In 2010, by comparison, the sector surged around 45 percent, due mainly to strength in the shares of BMW and Volkswagen.

Mr. Warburton said the macroeconomic situation remained a concern, but "if the auto makers, particularly the Germans, can continue to deliver returns at or near current levels, then we believe the stocks can still move up."