The Eurozone and the automotive sector - ey.com · Paolo Lobetti-Bodoni Mediterranean Automotive...

₹

The Eurozone and the automotive sectorExecutive summaryJune 2013

₹

The Eurozone in context

Sources: Eurostat, data as of March 2013; only February 2013 for Greece and UK; January 2013 for Norway; Ernst & Young Eurozone Forecast: Spring edition — March 2013.

• The risk of the Eurozone breakup has been averted and slow growth is expected to begin in the European Union (EU) in mid-2013.

• The EU is projected to return to growth in the second half of 2013, with gross domestic product (GDP) forecasted to contract by only 0.1% in the EU in 2013.

• GDP growth will average only 1.4% a year from 2014 to 2017, compared to 2.3% in the 10 years preceding the financial crisis.

• Nine of the Eurozone countries (Spain, France, Italy, Finland, Netherlands, Portugal, Cyprus, Greece and Slovenia) are in a recession, and shrinking economies make it difficult to ease the debt burden.

• Consumers’ willingness to make new purchases may be hampered by further increases in unemployment in 2013.

• Ongoing fiscal tightening also has a negative impact on household spending power.

• However, as the Eurozone economy stabilizes and then recovers, consumer spending is expected to start growing.

• According to the European Central Bank (ECB), lending to businesses declined by €18 billion in April 2013 (compared to April 2012) reflecting a blend of limited supply and muted demand.

• Credit crunch will impact medium and small enterprises in particular.

Confidence gain in economy has been less pronounced than in financial markets

Credit availability and access

Ernst & Young’s Global Automotive Center has developed this Eurozone analysis with the aim of:• Evaluating the Eurozone crisis in the context of the

automotive sector• Analyzing its severity and impact on the automotive

value chain, including vehicle manufacturers, suppliers, dealers and financial services

• Identifying strategic and tactical measures that the vehicle manufacturers and suppliers have deployed to weather the tough economic environment

• Providing insights and key considerations to help automotive sector participants wade through the crisis

Real GDP growth (%) 2012-15E: select European countries

Moderate economic recovery expected

-7.0-6.0-5.0-4.0-3.0-2.0-1.0-0.01.02.03.0

SpainGermanyItaly

EurozonePortugal

FranceGreece

15E14E13E1215E14E13E1215E14E13E1215E14E13E1215E14E13E1215E14E13E1215E14E13E12

The Eurozone crisis adds pressure across the automotive value chain

Sources: Vehicle registrations, KBA, CAR Institute; “Italy car dealers fall 7 pct to 2,011 at end-2012,” Reuters, 16 April 2013; “European car sales fall again in March,” BBC News, 17 April 2013.

Increasing youth unemployment

• Growing youth unemployment in European nations puts pressure on vehicle sales and current vehicle ownership models.

• Number of first-time car buyers likely to decline.

Pressure on vehicle pricing

• Intense price-based competition as manufacturers offer incentives and undertake self-registrations to prop up demand.

Strain on cost structure

• As demand declines, manufacturers are forced to operate at low capacity.

Dealers and suppliers risk insolvency

• Estimated decline in vehicle sales will lead to shutting down of dealers.

• With plant closures, significant capacity will be eliminated having a direct impact on suppliers.

Challenge on hedging strategies

• A more volatile and potentially weaker Euro challenges hedging strategies, geographic purchasing and sales exposure.

24%Unemployment rate of 15- to 24-year-olds in the Eurozone

870kFewer vehicles to be produced in 2013 compared to 2012 in the four largest vehicle-producing countries in Western Europe: Germany, France, Spain and Italy

31%Decline in number of car dealers in Italy since 2007

13%Year-over-year increase in average retail sales incentives in the top five markets — Germany, the UK, France, Italy and Spain — in March 2013

TrendicatorsVehicle sales decline

• Analysts expect 2013 new vehicle sales in Western Europe to drop to 1993 levels.

• In Q1 2013, the UK was the only major market with an increase in new car registrations (7.4%), while other major markets, such as Germany, France, Spain and Italy, registered a double-digit decline.

₹

Sector reacts to macroeconomic uncertainties by adopting multiple strategies

Sources: DAT press release November 8, 2012, CAP press release August 29, 2012, LMC Automotive, Global Car and Truck Forecast, 2012, EY Analysis.

Credit downgrades

• Credit rating agencies have downgraded Southern European vehicle manufacturers and suppliers.

• The credit downgrades will lead to high borrowing costs (high interest rates) and make refinancing even more difficult for already suffering companies in Southern Europe.

High incentives and self registrations

• In April 2013, self registrations in Germany increased 9.9% year-over-year to more than 60,500 vehicles, which is 21.3% of all new vehicle registrations.

• High incentives doled out to push sales have put pressure on margins. In March 2013, average retail sales incentives in the top five markets — Germany, the UK, France, Italy and Spain — to almost €2,400 per vehicle.

0.5%Record low interest rate offered by ECB in Eurozone to stimulate the economy

65%Capacity utilization by carmakers in Europe in 2012 (down from over 80% in 2007–08)

16 millionTotal estimated vehicle production loss at Western European plants between 2012 and 2015

Vehicle manufacturers adopt multiple strategies to manage overcapacity and tackle high fixed cost structure

Plant closures Shift reductions at plants

Layoffs Temporary shutdowns

Divestitures Labor agreement negotiations

Trendicators

₹

Responding to the Eurozone crisis

Sources: Dealogic Completed Transactions from October 2012 through March 2013. European Commission Flash Consumer Confidence Indicator for EU and Euro Area for May 2013.

Stakeholders Challenges Key considerations

Vehicle manufacturers

• Intense global competition• Volatile financial markets• Continued weak European

performance

• Deploy flexible and efficient operations

• Confirm stability of supplier base• Embrace new mobility concepts

Suppliers

• Lower volumes in Western and Southern European markets

• Product portfolio challenged by new competitors and new growth markets

• Shift production (where possible) to lower-cost Eastern European countries

• Scout for collaboration and mergers and acquisitions

• Invest in energy efficiency (weight, powertrain, etc.)

Dealers

• Western and Southern European markets continues to remain weak

• Low consumer confidence• High inventory levels at

dealers

• Efficient inventory management• Achieve high customer loyalty• Alignment of online/social

media and in-store brand and purchase experience

• Focus on additional services, including mobility

Financial services

• Competitive incentive offers boost vehicle sales

• Risk of brand dilution and impact on residual value increasing

• Maintain a strong financial structure to protect credit ratings.

• Establish a solid loan granting process

135Car premiers in 2013 at the Geneva Motor Show versus 85 in 2007, signifying proliferation of new vehicle models, despite market shrinking

28Number of automotive supplier deals completed in Europe in Q1 2013 compared to 17 in Q4 2012

-20.2%EU consumer confidence indicator in May 2013 versus -20.4% in April 2013)

Trendicators

Ernst & Young

Assurance | Tax | Transactions | Advisory

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

How Ernst & Young’s Global Automotive Center can help your businessThe global recession reset the automotive sector landscape. As the sector recovers, automotive companies across the value chain must focus on profitable and sustainable growth, financial and operational stability, investments in new technologies and seizing opportunities in high-growth markets. If you lead an automotive business, you need to anticipate trends, identify implications and make informed decisions that support your business goals. Our Global Automotive Center enables our worldwide network of more than 7,000 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. These insights, combined with our technical experience in every major global automotive market, will help you to accelerate strategies and improve performance. Whichever segment of the automotive sector you are in — from component suppliers to commercial or light vehicle manufacturers or retailers — we can provide the insights you need to realize your potential today and tomorrow.

© 2013 EYGM Limited. All Rights Reserved.

EYG no. ED0075

CGS/GSC2013/1074743

In line with Ernst & Young’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

www.ey.com/automotive

ED None

For more information on the automotive sector in the Eurozone, contact:Michael HanleyGlobal Automotive LeaderTel: +1 313 628 8260Email: [email protected]

Jeff HenningGlobal Automotive Markets LeaderTel: +1 313 628 8270Email: [email protected]

Jörg HönemannGSA Automotive LeaderTel: +49 511 8508 17718Email: [email protected]

Peter FussSenior Advisory Partner, Automotive GSATel: +49 619 6996 27412Email: [email protected]

Jean-Francois BelorgeyFraNeLux Automotive LeaderTel: +33 1 46 93 67 26Email: [email protected]

Paolo Lobetti-BodoniMediterranean Automotive LeaderTel: +39 01 1516 1640Email: [email protected]

Helene Siberg WendinNordics Automotive LeaderTel: +46 31 63 63 29Email: [email protected]

Anil ValsanLead Automotive AnalystTel: +44 20 7951 6879 Email: [email protected]

Christian HainzGlobal Coordinating AnalystTel: +49 619 6996 10918Email: [email protected]

Regan ByronGlobal Automotive Marketing ManagerTel: +1 313 628 8974Email: [email protected]

The Eurozone and the automotive sector - ey.com · Paolo Lobetti-Bodoni Mediterranean Automotive...

Documents

Transcript of The Eurozone and the automotive sector - ey.com · Paolo Lobetti-Bodoni Mediterranean Automotive...