European automotive industry woes could last beyond 2011
Recession to drive permanent changes to customer behaviour Prague, 29 October 2009 – The road to recovery in the automotive sector may last until 2011 and beyond. This is according to a survey by leading professional services organization Ernst & Young, which canvassed the views of 300 executives from manufacturers and parts suppliers across Europe, to understand how the industry will perform and evolve through the recession and into possible recovery. While nearly 70% of respondents expected their business situation to improve slightly during 2010, one-third predicted the gloomy prospect of a protracted return to sustained sales growth well into 2011.
“Although the industry has already gone through a painful period of unprecedented change, any light at the end of the tunnel for manufacturers and suppliers could be a long way off. The automotive industry has been one of the most reported and talked about sectors in the world over the past 12 months and while other sectors maybe showing small signs of growth, the automotive industry appears to have a significantly longer journey towards sustained recovery,” said Milan Kočka, Partner for automotive industry, Ernst & Young Czech Republic.
Scrappage effect
The survey also reveals that many in the industry – more than 60% – fear that when the range of state subsidies end, sales will fall significantly. The highest percentage of respondents fearing the drop in sales from the removal of scrappage schemes came from France (86%), Germany (74%) and Italy (60%).
“These results could be indicative of the strength of the subsidies offered by these countries, and perhaps reaffirms the criticism by some that the incentives offered have simply brought forward the sales of vehicles into this year,” said Milan Kočka.
Changing buyer behavior
But it is not only the downturn which is reshaping the industry, but also the changing needs of consumers that are having a huge impact on business models and products offerings.
When asked about the emerging opportunities for the new passenger vehicle market, nearly 60% of respondents predicted growth in sales for vehicles worth up to €15,000. In the €30,000-€50,000 bracket nearly 40% predicted a decline in sales, while in the price bracket of over €50,000, 45% of respondents said sales would fall.
“This shift towards smaller, cheaper cars is a major issue for the industry. These vehicles are less profitable for suppliers, manufacturers and dealers. Even when sales volumes return, profitability across the industry may not improve. This could have a massive impact on the premium brand sector, particularly for manufacturers in countries like Germany and UK,” added Milan Kočka.
Driving its way out of the recession
Industry executives also highlighted the significance of social and political influences as key to aiding the industry’s road to recovery. Reduction in fuel consumption and emissions (65%) and investment in new technologies such as electric vehicles (64%) were identified as vital to driving the industry out of the recession.
“The impact of increasing fuel prices, government legislation concerning emissions targets, and tax hikes on higher-emissions vehicles all open a window of opportunity for manufacturers to shape their own destiny and emerge out of the downturn in a strong position. But to reap the benefits of this opportunity they must be bold and forward thinking and continue to invest in new products and technologies to meet market demands,” explained Milan Kočka.
After the dust has settled
Change across the sector has been rapid and dramatic over the past 18 months and further change is predicted for both OEMs and suppliers.
“It is difficult to predict who the winners and losers will be when the dust settles on the industry. It is safe to say, however, that success will come to those organizations which, through the downturn, have made their businesses more agile to meet customer demands,” concludes Milan Kočka.
