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Renault's profit warning sets off tremors across auto industry

Paris

RENAULT set a gloomy tone for the European automotive sector by slashing its outlook for revenue and profit, saying weakening economies are weighing on car sales and tougher rules on emissions have increased costs.

The French carmaker's shares on Friday fell the most since the arrest last year of former boss Carlos Ghosn. Renault reduced its financial guidance for 2019, citing deteriorating results in markets including Turkey and Argentina, and spending on R&D.

The darkening of prospects lay bare a carmaker that is ill-prepared for a downturn in the sector. Interim CEO Clotilde Delbos, who took over a week ago in a management shake-up, has called for a strategy review and told the staff the company needs to "make some choices" on spending. Relations are strained with struggling partner Nissan Motor Co and analysts are raising concerns about its balance sheet and dividend.

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Market voices on:

"This profit warning comes at a time of major instability at Renault and its partner Nissan," Evercore ISI analyst Arndt Ellinghorst wrote in a note. "Investor worries will more likely intensify."

Standard & Poor's on Friday put Nissan ratings on a negative watch, saying the global auto industry could face a challenging business environment for the next one or two years, with sales remaining sluggish in major markets like North America and China. Car sales have also been weak in Europe, with the European Automobile Manufacturers Association saying this week the decline in the nine months through September was 1.6 per cent to 12.1 million.

Renault issued the revised guidance on Thursday ahead of a board meeting on Friday and quarterly sales scheduled to be published next week. Revenue will decline by 3 per cent to 4 per cent this year, after it previously forecast sales would be close to last year's level. Group operating margin will be around 5 per cent, below previous estimates for 6 per cent.

The company said third-quarter sales fell and cash flow should be positive in the second half of the year, but may not be for the whole of the year. "We assume a significant cut to the dividend and believe Renault may need to consider selling assets including Nissan shares to defend its balance sheet," Jefferies analyst Philippe Houchois wrote in a note. BLOOMBERG