Thanks to the strong recovery seen since H2 of 2014 many of Italy’s car suppliers have registered increasing profit margins and an improvement of their financial strength.
- Robust rebound in production
- Car dealers still the weakest link in the chain
- Insolvencies are expected to decrease in 2015
Italy’s GDP shrank again last year, by 0.4%, after contracting 1.8% in 2013. However, in contrast to an originally more muted outlook for the Italian automotive industry for the second half of 2014 and into 2015, the sector showed a robust rebound: according to the Italian National Automotive Industry Association (Anfia) in 2014 domestic car production increased 6% year-on-year in 2014 to 700,000 units. Production mainly rose in H2 of 2014, with a year-on-year increase of 15.5%. In H1 it decreased 1.5%. While the light motor vehicles segment and light commercial vehicles segment recorded increases in 2014 (7.7% and 15% respectively), the production of heavy commercial vehicles recorded a 24% decrease.
New passenger car registrations increased 4.2% and commercial vehicle registrations rose 13.9% in 2014 as the recession bottomed out and economic growth returned, expected to reach a modest 0.6% in 2015.
The rebound accelerated in H1 of 2015, with total production (cars, commercial vehicles, trucks) increasing 43.1% year-on-year, to almost 520,000 units. Passenger car production increased 63%, while light commercial vehicles output grew 12% and heavy vehicles 58%, benefiting from the rebound in the European car market.
At the same time, domestic car registrations increased further, by 15.2% for passenger cars and 8.6% for commercial vehicles.
With the steep decline in car sales and production in the years before 2014, many of Italy’s manufacturers and car part suppliers recorded decreasing profit margins. Especially smaller businesses saw their equity ratios, solvency and liquidity weaken. Thanks to the strong recovery seen since H2 of 2014 many of Italy’s car suppliers have registered increasing profit margins and an improvement of their financial strength. Despite the rebound in the domestic car market, export-oriented businesses are still faring better than their domestic-oriented peers.
Car dealers are still the weakest subsector in the automotive industry: with little in the way of assets and equity, and exposed to pressure from both suppliers and customers, they have been challenged by lower sales in recent years and by the need to carefully manage their working capital.
On average, payments in the Italian automotive industry range between 60/90 to 120/150 days, depending on the end-buyer and whether working capital requirements can be obtained from banks or suppliers. Generally, payments are quicker when the end-buyer is a foreign company. Over the past few years domestic payment trends have been poor, although over the last six months we have seen fewer non-payment notifications. We expect non-payments to decrease further in H2 of 2015. While insolvencies in the automotive sector have increased sharply over the past couple of years, we recorded a decrease in 2014 and expect this positive trend to continue in 2015, by about 5% year-on-year.
When underwriting the Italian automotive sector we still remain generally cautious, given the degree and duration of contraction seen in previous years and due to the fact that many businesses are still financially feeble. However, we have cautiously relaxed our underwriting stance since 2014, due to the recent signs of rebound.
We collect as much information as possible to assess buyers’ creditworthiness, including their years in business, their management, and associated companies. To give our clients an accurate assessment of their buyers we seek the most recent financial information, including interim results, either directly from the buyer or from our client. In complex and sensitive cases we will visit the buyer to investigate their reference market, clients, bank dependence, and business strategies.