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Outlook
no.1210
August September 2014
Special Report
www.eulerhermes.com
The global
automotive market
Back on four wheels
Economic Research
Euler Hermes
Contents
Economic Research
Euler Hermes Group
Economic
Outlook
no. 1210
Special Report
EDITORIAL
17
OVERVIEW
17
Belgium: At a standstill
AUTOMOTIVE MANUFACTURING
RISKS IN 2014
18
NEW PLAYERS
Technical breakdown
10
CHINA
Getting hot under the hood
18
19
12
UNITED STATES
Like new!
20
OUR PUBLICATIONS
22
SUBSIDIARIES
13
JAPAN
Automatic door closure
14
EUROPE
A market at several different speeds
15
15
16
16
Germany: Solid!
Euler Hermes
EDITORIAL
OVERVIEW
Euler Hermes
Euler Hermes
2 > United States. The market has finally returned to its pre-crisis sales level, with a -20%
reduction in the workforce and renewed profitability. We expect the market to grow +4% in
2014 and +3% in 2015, i.e. 17 million units sold.
3 > Japan. Despite its accommodating monetary policy and flagrant protectionism (94% of
cars sold are Japanese), the VAT hike is expected
to dent sales by -5% in 2014 and -2% in 2015.
4 > Europe. The automotive market is expected to recover by +5% in 2014 and 2015, but
is still a long way from its pre-crisis level. The
cannibalism among European auto makers continues to rage, eating away at margins already
suffering from overcapacity.
France: the market is showing early signs of
a recovery, and sales are expected to grow +3%
in 2015, but production, which continues to
move offshore and is positioned mainly in entry-level products, has more than halved since
2005.
Italy: the market is still depressed (sales are
expected to come in at 1.3 million units, i.e. half
their pre-crisis level) and production capacity
continues to be underutilized with no hope of a
rapid turnaround.
Germany: auto makers are seeking to absorb
the increase in operating costs and investments
via efficiency gains and internal synergies. The
Euler Hermes
94
90
85
80
75
70
65
60
55
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14e15f
-49%
France
-42%
Spain
-25%
Japan
-17%
-9%
United Kingdom
-8%
Germany
United States
2%
South Korea
11%
Brazil
26%
Mexico
46%
India
72%
China
149%
-60
-30
30
60
90
120
150
Euler Hermes
FOCUS
YANN LACROIX
2007
2008
2009
2010
2011
2012
2013
2014e
2015f
Revenue
Change (1)
8.6 %
12.0 %
-17.8 %
34.7 %
16.9 %
7.0 %
3.3 %
5.0 %
6.0 %
Operating
Profit Rate (2)
5.7 %
0.7 %
-0.5 %
7.0 %
7.4 %
7.2 %
7.3 %
7.4 %
7.5 %
Sources: Continental, Faurecia, Valeo, Autoliv, Plastic Omnium, consensus, Euler Hermes forecasts
(1) Change in revenue compared with the previous year (2) Operating profit rate = profit from operations over
revenue
75%
of global sales
concentrated in
4 regions
15%
27%
2%
Others
China
India
Russia
4%
4%
Brazil
Japan
8%
23%
17%
been shifted to low-cost countries such as Slovakia, Slovenia, the Czech Republic, or Poland,
to preserve a decent level of profitability. There
has been strong growth in production notably
in Mexico, which in a few years has become the
production factory for the United States; investment flows in Mexico are massive and many
projects are afoot, while domestic sales are stagnant. Last, new zones of production are emerging in Southeast Asia and North Africa.
United States
Europe
Overall risk
in the automotive
sector
Euler Hermes
Automotive manufacturing
SECTOR RESEARCH TEAM
2014
l
l
l
l
Structural weaknesses;
unfavorable or fairly bad outlook.
Imminent or recongnised crisis.
Euler Hermes
risks in 2014
Euler Hermes
CHINA
Getting hot under the hood
21 million
units
sold in 2015
Trend in registrations
12 rolling months (in millions of units)
China
25
United States
21
20
17
15
10
06
07
08
09
10
11
12
13 14e 15f
10
Euler Hermes
61.5%
3.5%
France
South Korea
9%
United States
12.5%
38.5%
16.5%
of market shares
held by Western
manufacturers
in China
China
Japan
20%
Germany
11
Euler Hermes
UNITED STATES
Like new !
The workforce
has been
reduced by
20%
2011
2012
2013
2014e
2015f
Revenue
Change (1)
8.3 %
0.3 %
5.8 %
-1.9 %
5.0 %
Operating Profit
5.3 %
0.9 %
3.7 %
2.7 %
3.5 %
Rate (2)
Sources: companies, Ford and General Motors, consensus, Euler Hermes
forecasts
(1) Change in revenue compared with the previous year
(2) Operating profit rate = profit from operations over revenue
12
1,300,000
Headcount(right axis)
1,200,000
12 million
12,000,000
1,100,000
936,000
9,000,000
1,000,000
900,000
800,000
6,000,000
700,000
600,000
3,000,000
05 06 07 08 09 10 11 12 13 14e 15f
40
2014
30
20
10
United States
Japan
South Korea
Germany
500,000
Euler Hermes
JAPAN
Automatic door closure
Japan
2011
2012
2013
2014e
2015f
Revenue
Change(1)
5.7 %
-2.6 %
14.6 %
15.8 %
3.2 %
Operating
Profit Rate (2)
4.0 %
2.9 %
5.5 %
7.3 %
7.3 %
Foreign brands
account for only
6%
of registrations
Registrations in Japan
12 rolling months (in millions of units)
6.0
Production in Japan
12 rolling months (in millions of units)
11
5.8
6%
5.6
Non-domestic 10
5.4
5.2
5.0
94%
4.8
Japan
8
4.6
4.4
4.2
4.0
05 06 07 08 09 10 11 12 13 14e 15f
6
05 06 07 08 09 10 11 12 13 14e 15f
13
Euler Hermes
4%
Italy
6%
EUROPE
6%
South Korea
Japan
12%
37%
United States
15%
20%
6 millions
units
Registrations in Europe
12 rolling months (in millions of units)
16
15
14
13.5
12
11
05 06 07 08 09 10 11 12 13 14e 15f
14
France
Excess capacity is
estimated at
13
Germany
Euler Hermes
In 2014,
Spanish production
is growing
again at
Annual Italian
production
+10%
Production in Spain
12
2 rolling months (in millions of units)
2.4
2.3
2.2
2.1
2.0
1.9
1.8
1.7
1.6
1.5
05 06 07 08 09 10 11 12 13 14e 15f
In 2011, Spain took the decision to increase the number of working hours and to
adjust wages downwards to pave the way
for an upturn in production and hiring: production is growing again at +10% in 2014 (1.9
million units) and we expect +8% in 2015 (at
close to 2.05 million units). The sector has become a large contributor to the countrys trade
surplus, which reached EUR 12.5 billion in 2013.
The domestic market is still being stimulated
by aid programs , including a EUR 2,000 scrappage premium on purchases of new cars. Despite growth in sales of +10% in 2014, at 800,000
units, sales remain at half their pre-crisis level.
With no support in 2015, the market can be expected to stabilize at best.
Italy has taken action but the main problem
is the ever-decreasing supply produced by Italian
auto makers, which have lost considerable market shares in Europe. Italys five factories are
markedly underutilized, although production
looks set to stabilize at around 400,000 vehicles
in 2014, up +3%. We do not see any tangible
recovery in the short term, with growth of only
+4% in 2015 to 416,000 units. The new production plan announced by FIATs management,
for, in particular, Alfa Romeo (targeted annual
sales volume of 400,000 in 2018 compared with
74,000 at present) and Maserati brands will take
time before new models are launched.
400,000
vehicles
Domestic demand remains in the doldrums
and shows no sign of improvement. Sales have
stabilized at 1.3 million units in 2013 and 2014,
with an uptick of around +5% expected in 2015.
This will nevertheless keep the market a long
way off pre-crisis levels, which peaked at 2.5
million units. With an ageing fleet, the Italian
government is also considering tax measures
to boost the market.
Production in Italy
12 rolling months (in millions of units)
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.4
0.3
05 06 07 08 09 10 11 12 13 14e 15f
15
Euler Hermes
Production in Germany
12 rolling months (in millions of units)
6.1
6
5.9
5.7
Germany produces
5.5
4 times
more
5.3
5.1
4.9
vehicles
than France
4.7
05 06 07 08 09 10 11 12 13 14e 15f
Production in France
3.0
2.5
2.0
1.5
1.5
1.0
05 06 07 08 09 10 11 12 13 14e 15f
16
earlier) and remains far below the stated 6% target. This is not an isolated case: although positioned more upmarket, Mercedes is expected to
step up its cost-reduction plan, from EUR 2 billion
to EUR 3.5 billion per year.
Sales in Germany are expected to stabilize at
3 million units in 2014, i.e. growth of only +3%.
With growth of +3% again in 2015, the market
will near 3.1 million units sold, which would still
be around 10% below its medium-term average.
The scrappage scheme in 2009-2010 boosted
registrations by nearly 800,000 additional vehicles, which is yet to be totally absorbed.
ZOOM
German manufacturers
register rates of
profitability in excess of
7%, whereas margins at
their French
counterparts are
between 2% and 3%.
The divergent
performances of
German and French
auto makers stem from
several factors.
2011
2012
Germany
2011
2012
Revenue
Change (1)
6.4 %
-4.4 %
-1.8
2.8 %
6.9 %
Revenue
Change (1)
17.4 % 14.7 %
1.9 %
5.4 %
4.5 %
Operating
Profit Rate (2)
2.2 %
0.2 %
-1.1 %
2.3 %
3.3 %
Operating
Profit Rate (2)
8.3 %
7.2 %
7.1 %
7.3 %
7.2 %
Sources: companies, PSA and Renault in France, Volkswagen, Daimler, and BMW in Germany, consensus, Euler Hermes forecasts
(1) Change in revenue compared with the previous year (2) Operating profit rate = profit from operations over revenue
Euler Hermes
2015 production
United Kingdom
1.6 million
The United Kingdom has regained its precrisis levels
In terms of production, the market will reach
around 1.6 million passenger vehicles in 2015,
i.e. the level produced in 2005, after a very tough
period during which historic manufacturers disappeared. Who still remembers British group
Leyland, which comprised the Jaguar, Rover and
Land Rover, Austin Morris, and Wolseley brands?
In its day it accounted for 40% of the market. Today the factories are labelled Nissan, Honda,
Toyota, Ford, Vauxhall (subsidiary of General Motors), Mini (subsidiary of BMW), and Jaguar Land
Rover (subsidiary of Indian conglomerate Tata).
Nevertheless, thanks to the flexibility of its labor
market and to its increasingly attractive corporate
tax regime, the United Kingdom has once again
become a true producer of cars, with annual production growth of around +3%.
It also benefits from a buoyant domestic demand, with the market forecast to grow +8%
in 2014 and a further +3% in 2015, to 2.5 million
units. It is one of the few markets to have surpassed, albeit just, its pre-crisis level.
Belgium
fell below
Production in Belgium
12 rolling months (in millions of units)
400,000
units
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.4
0.3
05 06 07 08 09 10 11 12 13 14e 15f
1.6
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
05 06 07 08 09 10 11 12 13 14e 15f
17
Euler Hermes
NEW PLAYERS
Technical breakdown
Brazil, Russia, India: Wheres the exit?
While India seems to be gradually awakening from its slumber, sales volumes remain confined to 1.8 million units, in a population of more than 1 billion inhabitants. Its
market remains ten times smaller than the Chinese market, with a very low ownership rate of
around 2%. The weak purchasing power and infrastructure deficiencies continue to hold back
strong growth, although the long-term potential
remains. For 2014 we expect weak growth of
around +2.5%. A new type of ultra-low-cost vehicle will need to be developed, in keeping with
the countrys needs and means.
Registrations in Russia
12 rolling months (in millions of units)
3.5
3.0
2.5
2.5
Brazil -10 %
Russia -14 %
India +2.5 %
2.0
1.5
1.0
0.5
0.0
07
08
09
10
11
12
13
14e 15f
3.0
Registrations
2.5
2.5
2.0
4.0
Production
Registrations
Production
3.5
2.6
1.5
2.0
1.5
0.5
05 06 07 08 09 10 11 12 13 14e 15f
1.0
05 06 07 08 09 10 11 12 13 14e 15f
18
3.2
3.0
2.5
1.0
Registrations
in 2014
Euler Hermes
Registrations
Production
0.8
0.6
0.6
0.5
0.4
0.2
05 06 07 08 09 10 11 12 13 14e 15f
Argentina
-30%
in sales in 2014
Registrations in Thailand
12 rolling months (in millions of units)
0.8
0.7
A fall in sales
in Thailand
0.6
0.5
0.4
0.4
-36%
in 2014
0.3
0.2
05 06 07 08 09 10 11 12 13 14e 15f
19
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This document reflects the opinion of the Economic Research Department of Euler Hermes Group.
The information, analyses and forecasts contained herein are based on the Department's current
hypotheses and viewpoints and are of a prospective nature. In this regard, the Economic Research
Department of Euler Hermes Group has no responsibility for the consequences hereof and no
liability. Moreover, these analyses are subject to modification at any time.
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