Survey Indicates European Outlook Varied by Country, Company Type

PARIS – Thanks to Germany, the European auto industry is in moderately good shape, a survey by Ernst & Young finds.

The country by country picture, however, is greatly contrasted, with the Italian auto industry practically in mourning.

Ernst & Young contracted to have interviews conducted with 300 auto industry executives in Europe: including 75 in Germany, 60 in France, and 30 each in Spain, Italy and the U.K.

Overall in Europe, 47% of those surveyed say the current business situation is good or fairly good. In Germany, the figure is 57%, while it is 48% in France, 50% in the U.K., 40% in Spain and 13% in Italy, where no respondents rate it as good, just fairly good.

Overall, 10% of those surveyed expect business to improve significantly in the next six months, but 68% predict it will improve slightly.

The belief in a significant upturn is strongest in France, where 25% indicate as much, while in Italy only 4% are convinced. In both Italy and Spain, about 30% of executives expect slight deterioration in the coming six months.

While nine of 10 respondents in France and Germany forecast some improvement, 2% of those surveyed in Germany expect a significant deterioration in their firm’s business situation this year, unlike anyone else, even executives in Italy.

“Companies where business is already going well could expect it to go less well in the future, while companies for which it has gone badly could be more optimistic,” says Jean-Francois Belorgey, responsible for the auto section at Ernst & Young in France.

The identities of the companies surveyed have not been released.

Belorgey notes that in Germany the auto industry has been successful despite the crisis in Europe, because many cars produced in the country are exported. But some German vehicles are dependent on the European market, widely expected to have another year of decline.

Globally, European executives expect the market in China to expand 4% this year and in India 3%, while North America should grow 1% and Western Europe decline by 1%.

The consensus figures are derived from a wide variety of individual predictions. In China, for example, 43% think the market will expand by more than 5%, and 13% expect it to remain about the same. For Western Europe, 3% foresee growth of more than 5%, while 8% predict a decline of more than 5%.

Executives were asked their opinions on different market segments in Europe. Fifty-two percent believe sales of cars priced below €15,000 ($19,600) will increase, but only 20% foresee a bigger volume for cars in the €15,000-€30,000($39,200) price range.

Despite the economic crisis, more companies plan to increase production capacity than reduce it in Europe. The same is true with their global plans.

In France, for example, 25% plan to hike European capacity, against 8% that would reduce it. Even in Italy, the weight is toward investment, with 2% planning reduced capacity and 13% expecting to expand. Overall, in West Europe, 30% forecast expansion and 14% predict contraction.

Some 34% of suppliers are in a growth mode, against 17% of auto makers. At the same time, vehicle manufacturers are far more content with business as it is, with 72% of auto-maker respondents saying business is good or fairly good, compared with 43% in the supply base.

“Some suppliers may believe that their technological products have a greater chance of success to be produced in Europe near the research centers,” Belorgey says. “Technology is becoming the cornerstone of the industry.”

Overall, the executives expect employment in Europe to rest stable in 2013, with as many companies planning to hire as shed workers. Here again, there is a big difference among countries, with 37% of Italians expecting a labor reduction, against 7% planning to hire. Spain is about equally divided, and France, Germany and the U.K. all have more companies planning to hire workers.

The European industry generally is considered to rely heavily on innovation. And despite the crisis, far more respondents plan to increase research and development spending this year (33%) than decrease it (7%). More auto makers are boosting R&D (41%) than suppliers (32%).

When it comes to innovation, the 300 executives were asked to rate the competitive power in various countries. Germany led the list, with 44% saying the country is very competitive when it comes to product innovation, while producing countries without native auto makers, such as Spain, Poland, Slovakia, Hungary and Turkey, all are rated as competitive by only 3% of respondents or less.

The plight of Fiat and its suppliers in Italy clearly is reflected in this part of the survey, as only 4% consider Italian innovation to be strongly competitive. France hardly fares better, with only 6% saying it is very competitive, one point less than Russia and the U.K.

In contrast, after Germany comes Japan (24%), South Korea (20%), China (18%), the U.S. and Sweden (13%) and Brazil and India (10%).

France fell further than any other country since a similar survey was made in 2011, and South Korea gained more than any other.

Ratings for product quality are similar to those for innovation, with Germany the leader by far (51% saying it is very competitive for quality), followed by Japan (26%), Sweden and South Korea (19%) and the U.S. and Britain (10%). Here, China scored only 5%, which is still ahead of Russia, Turkey and other small producers.