After declining by 27,9% in 2020, the car sales in the USA are expected to grow only 7,5% this year, since supply-side problems hinder still robust demand. The low production growth in 2021 is mainly due to the shortage of semiconductors and Hurricane Ida's impact on petrochemical firms has caused supply constraints on plastics, while semiconductor shortages are expected to last through 2022. As for next year, it is expected vehicle production to grow by 12%.
In order to maintain profits, original equipment manufacturers (OEMs) have adjusted their production, prioritizing high-margin and in-demand models (such as trucks). They have also been able to raise the selling prices for the vehicles. Supplier margins have been under pressure due to manufacturing shortages, higher prices for materials and labor shortages, while at the same time fixed costs remain high. However, a sharp deterioration in margins is not expected, as suppliers are also benefiting from ongoing demand and higher selling prices.
Being a capital intensive industry, the automotive depends on bank finance and many US businesses are highly leveraged. Banks are currently willing to lend to the sector and increased competition among financial institutions has led to an easing of lending standards over the past couple of months. Payments in the auto industry take around 60 days on average: during the pandemic-related shutdowns in 2020 firms stretched payments to preserve cash, but now most have returned to normal payment terms. The level of delays and insolvencies has been low over the past two months and analysts do not expect any substantial increase during 2022.
CHINA
At the same time, Atradius estimates that the Chinese car manufacturing will increase by 10% in 2021 and by about 4% in 2022. After a decline of 6,5% last year, auto sales are expected to grow about 6% in 2021 and 7,5% in 2022. Thanks to the increase in both production and sales, the profit margins of many companies rebounded in 2021. However, original equipment manufacturers (OEMs) have had to reduce production due to semiconductor shortages. This affects the deliveries of Tier 2 and 3 suppliers, leading to a slower collection of liquidity. If the chip shortage lasts into 2022, chip companies could face increasing payment delays and defaults, as many show lower margins and tighter liquidity than OEMs and Tier 1 companies.
The segment of electric vehicles it is a promising long-term market. However, the government has announced that it will phase out subsidies for electric mobility. It is an ongoing consolidation process, where more low-cost suppliers that produce basic components and have benefited heavily from subsidies in the past will exit the market. Only companies with access to external finance and the ability to invest steadily in research and development will survive.
With an average of 90-120 days, the overall payout period in the industry is quite long. Larger automakers tend to pay suppliers modestly, usually with longer payment terms and cashier's checks. This adds further pressure on the margins and capital base of smaller and/or privately owned suppliers.
EUROPA
For the moment, only Europe is showing timid signs of recovery Spain. After a contraction of 18,6% in 2020, this year is expected a rebound in motor vehicle production of 2,5%, with the current shortage of semiconductors severely impacting production. Auto sales rebounded year-over-year between January and August 2021, but were still 33% lower than the same period in 2019, due to ongoing consumer uncertainty and lower supply. While manufacturing shortages have recently worsened, strong rebound expected in 2022, with production up 18%.
The sub-fund should benefit from the imminent disbursement of the fund Next Generation US, supporting suppliers in their transition to electric mobility. Furthermore, the Spanish government has announced public and private investments for electric mobility for a value of 24 billion euros in the next three years. Spanish auto companies remain heavily dependent on bank financing or other external sources of finance, in order to finance a high level of equity and large fixed asset investments.
Banks provided long-term loans with 1-2 year grace periods. Payments in the automotive industry take an average of 60-90 days. The process has remained sustainable over the past two years and late payments and insolvencies are not expected to increase in the coming months. However, if current chip shortages and production cuts continue into 2022, smaller Tier 2 and 3 suppliers with limited access to new finance could face higher default risk.
