As reported by Atradius, strong sales volumes in emerging markets contributed massively to the recovery of automotive industry after the 2008 credit crisis. However, this process is recently seeing a turnaround, as demand for cars from advanced economies continues to grow, while the auto market in some major emerging economies is showing increasing signs of weakness. In the USA, the automotive market has been experiencing growth for seven years now and sales and production are expected to continue to increase also during this year and in 2016. The recovery of the market inEastern Europe accelerated further in the first half of 2015 and between January and July of this year the number of new car registrations grew by more than 8% compared to last year. The favorable environment made a strong contribution to the performance of manufacturers, suppliers and retailers of the sector in France, Italy and Spain, which have continued the recovery begun in 2014 after many years of stagnation or even contraction. However, it should be remembered that the economic recovery of the Eurozone is still fragile and the financial solidity of many automotive companies, especially in countries bordering the Mediterranean, continues to be affected by the long period of crisis. Contrary to what is happening in Europe and the USA, the performance of the automotive market in some of the main emerging economies is slowing down: in the first half of 2015, passenger car sales in Russia and Brazil contracted by 35% and 20% respectively, due to the growing economic problems, and is not expected to improve in the short term. Only two years ago these countries were considered the fastest growing markets for the automotive sector. In China, the economic slowdown and stock market swings are having a negative effect on vehicle sales, which should in any case continue to increase in 2015 and 2016, albeit at a decidedly lower rate.
The crisis in the Brazilian automotive sector, which began in the first half of last year, has further worsened due to the country's general economic slowdown. After modest GDP growth in 2014 (+0,1%), this year theeconomy of Brazil expected to contract by 2,0%. The Government has approved cuts in public spending and the purchasing power of households has decreased due to high inflation (over 9%) and growing unemployment (+7,5% in July 2015 compared to +4,3, 2014% in December XNUMX). The country's economic performance further weakened by sharp currency swings and lack of credit due to the high benchmark interest rate (14,25% in September), all factors that hinder household spending and business investment. The moment of crisis has a negative impact on the entire value chain of the automotive sector, from auto parts manufacturers to car manufacturers and dealerships. Although Brazil was recently considered one of the fastest growing markets, the Association Anfavea (which brings together Brazilian car manufacturers) estimated that domestic vehicle sales (including passenger cars, light vehicles, trucks and buses) decreased last year by 7,1% (3,5 million units). Production recorded a decrease of 15,3% (3,15 million units), while exports decreased by 30,4% mainly due to the difficult economic context of neighboring Argentina, the main export market for Brazilian cars. The flow of trade between these two countries is also limited by restrictions on Argentina's purchase of dollars needed to pay for imports.
In an effort to reduce the public deficit, The Brazilian government has reintroduced a new vehicle consumption tax (IPI) which is expected to drive up prices by 4,5-7% (depending on vehicle size). This means that Brazilian automakers will have to pass on a higher tax burden to consumers despite the unfavorable economic environment. In addition, the federal government has launched a spending review process which involves cutting numerous projects and subsidies and it is highly unlikely that the administration will have the resources to allocate to support the automotive sector. Furthermore, the revaluation of the Real has increased the price of imported cars and auto parts, which was already considerably higher in Brazil due to the high taxation introduced in order to encourage foreign companies to build production plants there. In this context, it is therefore not surprising that the profit margins of companies in the sector have suffered a sharp contraction in the last 12 months, with a negative trend that is expected to continue. The automotive industry has high fixed costs and it is therefore essential to maintain good sales volumes: however, this has increased the pressure on suppliers and auto parts manufacturers who have a weak financial structure and a growing level of debt. Payments in the Brazilian automotive sector vary greatly along the value chain: between 60 and 120 days. Car manufacturers generally have very long payment terms with their suppliers, often exceeding 120 days; in contrast, steel/metal producers are demanding shorter lead times from auto parts suppliers, which are therefore under severe liquidity and interest rate pressure. Hence, in the light of the problems listed, analysts expect a significant increase in payment delays and insolvencies in the coming months, after the sharp deterioration since the end of 2014.
