Industries to Watch: European Automotive

Throughout the world, there are many pockets of strength in automotive production. Aside from the supply-chain disruptions caused by a triple-disaster, Japan has maintained a prominent position, and the U.S. industry’s rebound has been surprisingly strong since two of its “Big Three” manufacturers declared bankruptcy several years ago during its domestic recession. However, such tales of success are looking fewer and farther between among European auto producers and, as such, credit professionals conducting business with these manufacturers or those who are a downstream suppliers should be watching the situation very closely for emerging solvency problems.

The ongoing debt crisis in much of Europe continues to put a strain on many industries, even more so for those selling primarily in the European Union. While companies like Mercedes and Volkswagen continue to do well because of their worldwide branding, many others are simply not competitive and probably won’t be for some time said FCIB Europe Economic Advisor Freddy Van den Spiegel. “Brands like Fiat and others, I don’t see how they can get out of their position,” he said in an interview at FCIB’s Annual International Credit and Risk Management Summit in Prague, where he was a keynote speaker. “There is a lot of competition from Asia.” He added that increased European legislation designed to address issues like carbon emissions and global warming put European producers, especially in countries like Italy and France, at a distinct disadvantage.

Meanwhile, Stefan Rasche, head of treasury at Czech Republic-based Skoda Auto, said everyone in the industry is keenly focused on falling markets and that “everyone has to deal with it,” as margins get pressured. However, Rasche noted that those producing in Eastern Europe are not facing problems as large as those in western and southern Europe because there is less dependence on local buyers. “We’re only partially dependent on the local, Czech market,” he said. “When you have a wider global footprint, it helps you balance off. We’re lucky in that regard.”

Still, Rasche said it has been critical to put more effort into quality risk management since the consumer base throughout Europe has shrunk due to increased unemployment or a fear of it. Such fear, and the resulting lack of consumer confidence, isn’t likely to cede anytime in the near term given the depths of economic problems in the EU.

- Brian Shappell, CBA, CICP, NACM staff writer

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