Industrial Partnerships: restructuring of the auto production apparatus

Industrial Partnerships: restructuring of the auto production apparatus

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Description: Automobiles, massive restructuring of the production apparatus, Europe: contrasting fortunes, European constructors, Japan: the yen’s sharp appreciation impacts on competitiveness, Korean constructors.

 
Author: Wilfried Verstraete, Ludovic Subran and Yann Lacroix (Fellow) | Visits: 1588 | Page Views: 3509
Domain:  Green Tech Category: Transportation Subcategory: Auto 
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Contents:
Automobiles: braking sharply?
Wilfried Verstraete, Chairman of the Board of Management Ludovic Subran, Chief Economist and Director of Research Yann Lacroix, Manager of Group Sector Studies
Press Conference � Paris, 8 December 2011

Automobiles: braking sharply?

1

2011: La production mondiale a retrouv� sa croissance de moyen terme 2011: world production returns to growth in uneven fashion en ordre dispers�
2011-2012: signs le march� montresteam are appearing Mais of running out of des signes d'�ssouflement depuis l'�t� 2011

2

3

2012: Et des doutes of the European automotiveplans d'aust�rit�s 2012: a break out subsistent en Europe avec les sector?

Copyright Euler Hermes 2011

2

World production

The 2008-2009 crisis in the sector (production down by 15.5%) was totally erased in 2010
In 2011, production returns to its average growth level
World automobile production (millions of units)
85.0

80.0

75.0

Year 2007 2008

Production (millions of units) 73.1 70.5 61.8 77.9 81.8

Annual change 5.5% -3.5% -12.4% 26.0% 5%

70.0

65.0

2009
60.0

2010
55.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* * forecast

2011* * forecast

Sources: OICA, Euler Hermes

Copyright Euler Hermes 2011

3

World production

New growth driven exclusively by the emerging markets
Production in the industrialised countries remains largely down against 2007
Automobile production (millions of units) Europe North America South America Asia / Oceania of which, Japan of which, Chine Total
Sources: OICA , Euler Hermes
Copyright Euler Hermes 2011 4

2007 23.1 13.4 5.6 31.2 11.6 8.9 73.3

2011 20.5 10.4 7.0 43.8 7.7 19.8 81.5

Change, 2007 to 2011 -11% -22% 24% 40% -34% 123% 11%

World production

United States: massive restructuring of the production apparatus
In order to adapt to falling output volumes
Shrinking workforce (thousands of persons): constructors and component manufacturers
1 300

USA
1 100 900 700 500 300 100 2000
Sources: national figures

Germany

France

USA: the size of the workforce is stabilising, after having dropped by half between 2000 and 2009 in order to adapt to the 50% fall in production France: workforce down by 26%, as production falls by 36%

2007

2008

2009

2010

Germany: the workforce shrinks by 4%, with production having returned to its pre-crisis level

Copyright Euler Hermes 2011

5

World production

Europe: contrasting fortunes
7 6 5 4 3 2 1 0 2007 2008 Germany 2009 Spain France 2010 Italy 2011

Only Germany has returned to its pre-crisis production level, thanks to its high-end positioning

Spain, is Europe's second biggest producer

France and Italy: Sharp falls in production.
2011 6.2 2.3 1.9 0.8 Change, 2007 to 2011 0.0% -20.7% -36.7% -38.5%

Production
(millions of units)

2007 6.2 2.9 3 1.3

2008 6 2.5 2.6 1

2009 5.2 2.2 1.9 0.85

2010 5.9 2.4 2 0.85

Germany Spain France Italy

Positioned in entry-level and mid-range vehicles, these countries' industries have had to offshore considerably to low-cost locations

Sources: OICA , Euler Hermes
Copyright Euler Hermes 2011 6

World production

European constructors have regained some profitibility thanks to world volumes
Notably in Germany, which accounts for more than two-thirds of European constructors' total turnover Europe
Change in turnover Operating profit ratio
(operating profit � turnover)

2007 na

2008 -2.3%

2009 -11.4%

2010 13.4%

2011 (est.) 14.8%

4.9%

3.3%

-0.6%

5.1%

5.6%

Net profit ratio
(net profit � turnover)

4.2%

2.1%

-1.8%

4.7%

4.4%

Sources: Volkswagen, Daimler, BMW, PSA, Renault , FIAT, and Euler Hermes estimates NB: accounts closing in December

Operating profit ratio = operating profitability Net profit ratio = net profitability
Copyright Euler Hermes 2011 7

World production

Japan: a more hesitant recovery...
Explained by a strong dependence on its own domestic market and on the American market, and by the appreciation in the yen Japan
Change in turnover 2007 12.2% 2008 8.5% 2009 -21.3% 2010 -11.1% 2011 5.7%

Operating profit ratio
(operating profit � turnover)

8.0%

7.8%

-1.0%

2.2%

4.0%

Net profit ratio
(net profit � turnover)

5.5%

5.3%

-1.5%

1.3%

3.0%

Sources: Toyota, Honda, Nissan Mazda, Mitsubishi NB: accounts to the end of March

Copyright Euler Hermes 2011

8

World production

Japan: the yen's sharp appreciation impacts on competitiveness
2001-2008: a more than 40% depreciation in the yen against the euro brings competitive advantage to Japanese manufacturers Since summer 2008, the appreciation of yen against the euro is seriously reducing their competitiveness and creating problems for their strategy of producing vehicles in Japan
Loss of competitiveness
0.6 0.5

Changing yen/euro parities (100Y = 1)

1.2 1.1

Gains in competitiveness
1 0.9 0.8 0.7

Production in 2010 Domestic -6% 8.3 million units Outside Japan +30% 13 million units

Jan-08

Jan-09

Jan-00

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Copyright Euler Hermes 2011

Jan-06

Jan-07

Jan-01

9

World production

South Korea: once `small' constructors conquering the world?
Korean constructors continue to gain market share across the globe � increasing their share of world production from 4.6% in 2005 to 7.5% in 2010 � and remaining afloat during the 2008-2009 crisis

South Korea
Change in turnover

2007

2008

2009

2010

2011

7.7%

13.4%

18.6%

28.1%

17.7%

Operating profit ratio
(operating profit � turnover)

3.1%

3.0%

5.6%

7.7%

8.0%

Net profit ratio
(net profit � turnover)

1.6%

0.8%

3.3%

5.2%

5.6%

Sources: Hyundai, Kia

No crisis in volume
Copyright Euler Hermes 2011 10

Automobiles: braking sharply?

1

2011: world production returns to growth in uneven fashion

2

2011-2012: signs of running out of steam are appearing

3

2012: a break out of the European automotive sector?

Copyright Euler Hermes 2011

11

Signs of slowing: the new emerging country markets

China: after two years of euphoria, market growth is slowing
New registrations of private cars and light utility vehicles, (year-on-year change, millions of units)
16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Jun-10 Dec-10 Dec-11 Dec-12 Jun-11 Jun-12 Jun-06 Jun-07 Jun-08 Jun-09

The Chinese market paused in 2011, with growth of 4% to 5%, after expanding by annual rates of 30% to 40% in 2009 and 2010, fuelled by scrappage allowances Given its low 5% ownership rate, it has vast potential for growth

Source: China Association Automobile Manufacturers

The Chinese market should grow by 5% in 2012
Copyright Euler Hermes 2011 12

Signs of slowing: the new emerging country markets

India: the market is starting to suffer from the rise in interest rates, and is absorbing the failure of the super-low cost vehicle
New registrations of private cars and light utility vehicles, (year-on-year change, millions of units)
2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4

A slight decline in the Indian market to below 2 million units, hit by the rise in interest rates
Interest rates
8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 Jul-09 Jul-10 Jan-09 Jan-10 Jan-11 Jul-11

Source: Society of Indian Automobile Manufacturers

Copyright Euler Hermes 2011

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-11

Dec-12

Dec-10

The Indian market offers prospects of long-term growth
13

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Signs of slowing: the new emerging country markets

Brazil: a market also in a period of stabilisation
New registrations of private cars and light utility vehicles, (year-on-year change, millions of units)
2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 Jun-07 Jun-08 Jun-11 Jun-06 Jun-09 Jun-10 Jun-12 Dec-06 Dec-07 Dec-09 Dec-10 Dec-11 Dec-12 Dec-05 Dec-08

The rise in import taxes should increase imported vehicle prices by 26%, while the rise in interest rates have slowed market growth to a degree Announced increases in local production capacities by the major constructors

Source: Associa�o Nacional dos Fabricantes de Ve�culos Automotores

The Brazilian market should recover gently, growing by 2% in 2012
Copyright Euler Hermes 2011 14

Signs of slowing: the new emerging country markets

Russia: a market boosted by the implementation of scrappage schemes in 2010-2011
New registrations of private cars and light utility vehicles (year-on-year change, millions of units)
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

2011: the Russian market is still profiting from the effects of scrappage schemes amounting to more than 1,000 (or 25% of the price of the Lada's 2107 model)

Source: Association of Russian Automakers

2012: zero growth with the end of scrappage schemes at the end of 2011
Copyright Euler Hermes 2011 15

Signs of slowing: the mature replacement markets

United States: a slow revival led by vehicle replacement purchases
New registrations of private cars and light utility vehicles, (year-on-year change, millions of units)
18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0

The US market was below 13 million units in 2011 The fall in new vehicle registrations since January 2008 has meant lost sales of nearly 20 million units

Due to the ageing of the existing fleet of vehicles, the market should continue its recovery

Jun-06

Jun-07

Jun-09

Jun-12

Dec-11

Dec-06

Dec-09

Source: Auto Alliance

It will still take many years to return to pre-crisis levels. We expect the market to grow by 8% to 10% in 2012
Copyright Euler Hermes 2011 16

Dec-05

Jun-08

Jun-10

Jun-11

Dec-08

Dec-10

Dec-07

Dec-12

Signs of slowing: the mature replacement markets

Japan: an announced but temporary revival
New registrations of private cars and light utility vehicles, (year-on-year change, millions of units) The Japanese market, at 4 million units, is trying to recover, but it is 25% down against its pre-crisis levels Following the earthquake, the market dropped by 50% in April and by 38% in May The Japanese market is in long-term structural decline

5.8

5.3

4.8

4.3

3.8
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

Source: Japan Automobile Manufacturers Association

An exceptional 8% increase expected in 2012, in response to the exceptional 15% drop posted in 2011
Copyright Euler Hermes 2011 17

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Europe

Europe: the market remains depressed, especially in the south of Europe
New registrations of private cars and light utility vehicles, (year-on-year change, millions of units)
16.5 16.0 15.5 15.0 14.5 14.0 13.5 13.0 12.5 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jun-07 Jun-09 Jun-11 Jun-06 Jun-08 Jun-10 Jun-12

The European market is still 15% below its precrisis levels

Continued deterioration in the Italian and British markets German market stabilising 10% contraction in the French market

Sources: ACEA, Euler Hermes forecasts

The European market could post a further 3% to 5% decline in 2012
Copyright Euler Hermes 2011 18

Automobiles: braking sharply?

1

2011: world production returns to growth in uneven fashion

2

2011-2012: signs of running out of steam are appearing

3

2012: a break out of the European automotive sector?

Copyright Euler Hermes 2011

19

Europe

Markets caught in the grip of the economic realities and austerity
The British market: 19% down on its pre-crisis level The Italian market: 29% down on its pre-crisis level The Spanish market: 50% down on its pre-crisis level

New registrations: private cars and light utility vehicles (yr/yr change, in millions of units)
2.6 2.5 2.4 2.3 2.2 2.1 2.0 1.9 1,8 1.7 1.6 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 2.0 1.9 1.8 1.7 1.6 Dec-07 Dec-09 Dec-12 Dec-05 Jun-06 Dec-06 Jun-07 Jun-08 Dec-08 Jun-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 2.. 5 2.4 2.3 2.2 2.1 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 Dec-05 Jun-06 Dec-06 Jun-07 Jun-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-07 Dec-08 Dec-12

Sources: SMMT, ANFIA, ANFAC, Euler Hermes forecasts NB: The figures for changes in the number of registrations correspond to data to the end of October 2011

UK: -3% in 2012

Italy: -4% in 2012

Spain: 0% in 2012

Copyright Euler Hermes 2011

20

Europe

Germany: the market is normalising
But it will remain slightly below its long-term average
New registrations: private cars and light utility vehicles (yr/yr change, in millions of units)
3.9 3.7 3.5 3.3 3.1 2.9 2.7 2.5

Scrappage schemes in 2009 helped sales of an additional 700,000 vehicles

No supports targeted specifically to the sector

Dec-06

Source: VDA, Euler Hermes forecasts

Germany: steadying at 3.1 million units in 2012, or a drop of 1.5%
Copyright Euler Hermes 2011 21

Dec-05

Dec-08

Dec-09

Dec-10

Dec-11

Dec-07

Dec-12

Jun-11

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-12

Europe

German constructors demonstrate their resilience
The deterioration in the European market will impact little on the profitability of German constructors, which are far more oriented to international sales and top-of-the-range vehicles

Germany

2007

2008

2009

2010

2011
(estimate)

2012
(forecast)

Change in turnover

NS(*)

-0.5%

-10.7%

21.4%

13.2%

1.0%

Operating profit ratio
(operational profit � turnover)

5.5%

3.7%

-0.9%

6.1%

7.0%

6.6%

Net profit ratio
(net profit � turnover))

4.6%

2.6%

-0.6%

5.1%

5.7%

5.5%

Cumulative data from BMW, Daimler, VW and consensus (*) Non significant

In 2012, a fairly steady forecast operating profit ratio at 6.6%
Copyright Euler Hermes 2011 22

Europe

France: a market boosted by rebates in 2011
Despite many manufacturer rebates, order books are sharply deteriorating
New registrations: private cars and light utility vehicles (yr/yr change, in millions of units)
2.5

2.4

Scrappage allowances in 20092010 helped to sell an additional 500,000 vehicles

2.3

2.2

2;1

2;0

1.9 d�c-05 d�c-06 d�c-09 d�c-10 d�c-12 d�c-07 d�c-08 d�c-11 jun-06 jun-07 jun-08 jun-09 jun-10 jun-11 jun-12

The easing out of scrappage allowances over the start of the year and manufacturer rebates generated an additional 200,000 registrations in 2011

Sources: CCFA, Euler Hermes forecasts

The French market could shrink by 10% in 2012
Copyright Euler Hermes 2011 23

Europe

French constructors are still too heavily dependant on the European market
The deterioration in the European market, notably in Southern Europe and in France, will impact on the profitability of French constructors
France 2007 2008 2009 2010 2011
(estimate)

2012
(forecast)

Change in turnover

3.2%

-9.0%

-10.9%

15.7%

6.8%

-1.8%

Operating profit ratio
(operational profit � turnover)

3.2%

1.0%

-1.3%

2.9%

2.5%

2.2%

Net profit ratio
(net profit � turnover))
Cumulative data, PSA, Renault and consensus

3.5%

0.2%

-5.2%

4.8%

3.2%

2.7%

In 2012, operating profits should be a third the size of Germany's
Copyright Euler Hermes 2011 24

Conclusion
The 2008-2009 crisis amplified the offshoring of production towards the emerging countries, although these markets are seeing a slowdown in demand this year and for 2012. Adjusting to new markets and new product range requirements is of vital importance. The world market remains on positive trend for 2012, with a technical upturn coming in the US and Japan, and growth (albeit slowed) in some of the emerging countries. Overcapacities, above all in Europe, remain sizeable, especially given that sales volumes are slated to fall further (economic slowdown and austerity measures). The profitability of some generalist constructors is under threat. Given the scale of the challenges, especially those facing the development of eco-friendly vehicles, forging industrial partnerships is vital to both production and innovation. This would help to ensure the competitiveness of the major constructors and help support their development costs.
Copyright Euler Hermes 2011 25

Thank you for your attention.
www.eulerhermes.com

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