Automotive Monitor. June 2014 Automotive Monitor

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Damon Gilbert
6 years ago
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1 1 Automotive Monitor 1

Trend 1 Tracker NOLVs for OEM parts increased, with

primarily due to strong market conditions, while NOLVs

on industry participants attempting to maintain gross

Turnover trends increased for OEM parts due to improved

High levels of new vehicle turnover and an increase in

aftermarket replacement parts, while turnover trends for

decreasing based on market price fluctuations, the

associated with new or expiring contracts.

increased customer discounts and for tyre manufacturers

Stock levels for OEM parts increased for companies that

Aftermarket replacement parts exhibited consistent stock

Stock levels for tyre manufacturers and distributors

2 Trend 1 Tracker NOLVs for OEM parts increased, with improvements driven by strong downstream demand and improved stock management practices. NOLVs for aftermarket replacement parts increased primarily due to strong market conditions, while NOLVs for tyre manufacturers and distributors were mixed based on industry participants attempting to maintain gross margins while remaining competitive. Turnover trends increased for OEM parts due to improved management of obsolete stock. High levels of new vehicle turnover and an increase in miles driven led to increased turnover trends for aftermarket replacement parts, while turnover trends for tyre manufacturers and distributors increased due to increased demand. Gross margins for OEM parts were mixed, increasing or decreasing based on market price fluctuations, the ability to secure new contracts, and the margins associated with new or expiring contracts. Gross margins for aftermarket replacement parts due to increased customer discounts and for tyre manufacturers and distributors due to increased competition. Stock levels for OEM parts increased for companies that secured new contracts. Aftermarket replacement parts exhibited consistent stock levels due to companies improving their overall stock mix. Stock levels for tyre manufacturers and distributors increased to support growth in demand. Pricing was mixed for OEM parts depending on the ability to secure new contracts. Pricing for aftermarket replacement parts due to an increase in discounts given to customers and for tyre manufacturers and distributors due to increased competition. 1

3 Overview 2 The European Union ( EU ) is the world s largest producer of motor vehicles. The automotive industry is one of the most significant contributors to the EU s economy, accounting for the largest portion of gross domestic product and the largest number of exports. Despite signs of recovery in the first four months of 2014, increasing 7.4% to 4.34 million vehicles sold, Europe s car market could face price pressures. Customer discounts increased and car sales grew at their slowest rate in five months, down 20% from the same period in 2007, when EU car sales totaled 5.4 million vehicles. Industry analysts report a sharp slowdown in new vehicle demand, after car sales grew approximately 11% in March, partially due to the early Easter holiday in The slower rate of growth has cast doubt on the strength of the rebound in demand in the coming months, leading analysts to believe that the European car market will continue to face overcapacity and price pressures. Industry analysts indicate that although Europe s automotive sector is showing signs of recovery from a six-year slump, excess production, as well as heavy discounting and incentives, continue to distort the true level of demand. April s sales growth was primarily attributed to discount incentives offered by automakers and an increased amount of car owners replacing aging vehicles. According to Reuters, average retailer incentives in April increased 12% to approximately 2,750 Euro per vehicle in the five biggest European markets, with discounting outpacing turnover growth. However, despite the strong rebound in the first four months of the year, new car registrations across Europe were generally lucklustre in May. 2

Overview 3 Germany: New car sales in Germany, Europe s largest auto market, rose 5.2% in May 2014 versus the same month last year, resulting in a 3% increase in year-to-date turnover.

4 Overview 3 Germany: New car sales in Germany, Europe s largest auto market, rose 5.2% in May 2014 versus the same month last year, resulting in a 3% increase in year-to-date turnover. The growth was primarily attributed to strong sales performance from Opel, part of General Motors Peugeot and Citroen, as a result of strong incentives and discounts offered to customers. However, auto analysts at LMC Automotive warn that an extra selling day and weak turnover in the same month last year distorts the year-on-year comparison. U.K.: The U.K. posted its highest turnover figures in May 2014 in 10 years, with turnover rising more than 7% from a year earlier. However, the increase was smaller than April s annual increase of 8.2% and March s 17.7% jump. Furthermore, the Society of Motor Manufacturers and Traders indicates that it expects car sales in the country to slow down. Spain: Spain once again delivered the best performance by far, with new car sales in the country increasing 17% in May 2014 versus May 2013, and up 16.3% over the first five months of the year. Spain s May sales marked the ninth consecutive month of increases. The increase was largely driven by a government subsidy program that allowed car owners to take a price reduction of up to 2,000 for exchanging their old car for a brand new one. The aforementioned subsidy was partly funded by the Spanish government, as well as by carmakers. Italy: Car sales in Italy, Europe s fourth-largest car market, fell 4% in May 2014 versus the same month the prior year, with car sales for Fiat Chrysler Automobiles down 11%. However, car sales increased 3% so far in 2014 to 1.4 million vehicles. France: The automotive market in France continues to stagnate, with car sales remaining unchanged in May 2014 versus May However, industry analysts project a 1% decline in turnover for the remainder of

Overview 4 Country April 2014 (Units Sold) April 2013 (Units Sold) % Change Austria 29,240 30,807 (5.1%) Belgium 53,319 53,036 0.5% France 166,959 157,749 5.8% Germany 274,097 284,444 (3.

2% Source: European Automobile Manufacturer s Association ( ACEA ) Most major automotive companies reported positive turnover results for April 2014.

5 Overview 4 Country April 2014 (Units Sold) April 2013 (Units Sold) % Change Austria 29,240 30,807 (5.1%) Belgium 53,319 53, % France 166, , % Germany 274, ,444 (3.6%) Italy 119, , % Netherlands 28,479 30,408 (6.3%) Spain 80,174 62, % Sweden 27,543 24, % U.K. 176, , % Source: European Automobile Manufacturer s Association ( ACEA ) Most major automotive companies reported positive turnover results for April Car turnover for Volkswagen Group ( VW ), the largest automotive manufacturing group in Europe, rose 4.1%, with turnover for its Audi luxury division up 1%. Jaguar Land Rover, the U.K. s leading manufacturer of premium luxury vehicles, delivered a record breaking turnover performance in April, retailing 37,171 vehicles in the month, up 30% versus the same period last year. During the first four months of the year, Jaguar Land Rover sold 161,947 vehicles, up 12% versus In April, Jaguar Land Rover reported a 27% turnover increase in Europe alone. Andy Goss, Jaguar Land Rover s director of group sales operations commented on April s performance stating, Alongside the F-TYPE, all three Range Rover models delivered record April turnover performances, reflecting the global appeal of our strongest ever vehicle line up. The overall industry-wide growth in April was aided by a 16% increase in turnover for Renault SA, an 8.7% increase for Ford Motor Co., and a 5.2% increase for Paris-based PSA Peugeot Citroen, Europe s second-largest auto manufacturer. 4

6 Overview 5 Opel, the German brand of Detroit-based General Motors Co., and its sister, the Vauxhall division in the U.K., sold 7.4% more cars in Europe in April 2014 versus the same month in Daimler AG s Mercedes-Benz division, which ranks third in global premium-vehicle turnover after BMW and VW s Audi, posted a 1.9% increase in the month. Bayerische Motoren Werke AG ( BMW ), the world s largest maker of luxury cars, sold 1% more autos in Europe in April, as a 3% gain at the namesake brand compensated for an 11% drop at the Mini small-car marque, which is updating its lineup. Fiat s European turnover rose 2% in April, with the namesake s brand deliveries rising 3% and demand at its SUV division increasing 52%. April turnover for Asian auto manufacturers were not so promising, with 8.2% and 4.1% turnover declines for Tokyo-based Honda Motor Co. and Seoul-based Hyundai Motor Co., respectively. Toyota Motor Corp. the world s largest auto manufacturer, sold 3.1% more vehicles in Europe in April, primarily due to a 37% growth for its Lexus brand. 5

Overview 6 According to business consulting firm McKinsey & Company, global profits for automotive OEMs are expected to rise by approximately 50% by 2020.

McKinsey & Company indicates that the European OEM market will face challenges, as according to the ACEA, the market is facing significant overcapacity.

7 Overview 6 According to business consulting firm McKinsey & Company, global profits for automotive OEMs are expected to rise by approximately 50% by The increase will primarily stem from growth in emerging markets and, to a lesser extent, the U.S., Europe, Japan, and South Korea will be stagnant in terms of profit growth. McKinsey & Company indicates that the European OEM market will face challenges, as according to the ACEA, the market is facing significant overcapacity. A number of lowercost brands have recently entered the European OEM market, further increasing competition. The country's OEMs have announced capacity reductions of 750,000 vehicles by Analysts predict that if OEMs in Europe do not revise their production footprint beyond the announced capacity adjustments, it could be five years before the industry gets back to its precrisis utilisation rates and related profitability levels. It is anticipated that other European markets will not do so well, as ongoing high unemployment rates will stall a recovery in private consumption, shifting the volume growth of some aftermarket products, such as shock absorbers. Price growth in Eastern European markets will remain low as economies continue to recover and volumes increase revenue for the aftermarket industry. Analysts indicate that recent legislation in Germany will ensure that higher-priced winter tyres are fitted during the colder months. This will allow the export giant to retain 30% of European tyre revenues. While the European aftermarket is forecasted to post a healthy compounded annual growth rate of 1.9% over the next four years, analysts indicate that the future does not look as bright at the individual product level. As a result, many aftermarket parts manufacturers will need to focus on product innovation. Market research firm Datamonitor indicates that over the next four years, aftermarket manufacturers will start to shift their focus towards a number of emerging markets. Russia will become the largest tyre market for Europe by volume, up from its previous fourth place, and will replace Spain to join the top five markets in both brake pad and disc volumes. Across Europe, the last two years have been a testament to the European government s heavy influence on the automotive sector, as it bailed out and subsidised the industry. However, the original equipment supplier s success was the aftermarket s sudden downfall, as scrappage schemes throughout Europe led to a large number of older vehicles, whose parts were due for replacement, being exchanged for newer cars. 6

Recent 7 Appraisal Trends The EU s continued economic recovery and general austerity has led to an overall increase in turnover and NOLVs for manufacturers and distributors of OEM parts.

Gross margins increased or decreased up to three percentage points, based on market price fluctuations, a company s ability to secure new contracts, and the margins associated with new or expiring

8 Recent 7 Appraisal Trends The EU s continued economic recovery and general austerity has led to an overall increase in turnover and NOLVs for manufacturers and distributors of OEM parts. GA s engagements exhibited mixed gross margin trends in the first quarter of Gross margins increased or decreased up to three percentage points, based on market price fluctuations, a company s ability to secure new contracts, and the margins associated with new or expiring contracts. Stock levels for companies supplying the OEM market tend to fluctuate based on the number of contracts won or lost from one year to the next. In the first quarter of 2014, most engagements exhibited fairly consistent finished good stocks, as these products are typically shipped soon after completion. The level of raw materials and work-in-process stock increased to support higher demand. replacement parts were positively impacted by new vehicle turnover and an increase in miles driven. Gross margins decreased up to two percentage points year-over-year. Deterioration in gross margins has been driven by an increase in discounts given to customers, as the aftermarket replacement parts market is typically very price sensitive. GA observed fairly consistent stock levels in most engagements. Companies have increased the level of products that are selling well, while managing down slow-moving stock levels, improving the overall mix. The aforementioned factors have had a positive impact on NOLVs for participants in the aftermarket replacement parts sector. Values increased up to two percentage points in the first quarter of 2014 as compared to NOLVs for OEM parts increased one to four percentage points in the first quarter of 2014 versus Gains were driven by increased turnover and improved management of obsolete stock. Gains were slightly offset by an increase in lower-recovering raw materials and work-inprocess. Turnover of aftermarket replacement parts increased up to 10% in the first quarter of 2014 versus Turnover of aftermarket 7

Recent 8 Appraisal Trends Tyre turnovers were positive in the first quarter of 2014 as compared to the previous year.

However, industry participants continue to be impacted by the reduction of anti -dumping tariffs and increased competition.

Values were positively impacted by increased turnover volumes, but were negatively impacted by competitive market conditions and gross margin erosion.

9 Recent 8 Appraisal Trends Tyre turnovers were positive in the first quarter of 2014 as compared to the previous year. Demand for tyres was driven by an improvement in new car turnovers, an increase in miles driven, and general recovery in the economy. However, industry participants continue to be impacted by the reduction of anti -dumping tariffs and increased competition. As a result of the aforementioned factors, NOLVs continued to be mixed in the first quarter of 2014 as compared to Values were positively impacted by increased turnover volumes, but were negatively impacted by competitive market conditions and gross margin erosion. The aforementioned increase in competition has resulted in slight erosion to gross margins. In most engagements, GA observed a relatively small decrease in gross margin of one percentage point due to price competition. Stock levels have increased up to 5% year-overyear to support increasing demand. 8

10 Experience 9 GAEV and its subsidiaries have worked with and appraised numerous companies within the automotive industry. While our clients remain confidential, they include companies throughout the automotive supply chain, including manufacturers, importers, distributors, and retailers of aftermarket, performance, replacement, and OEM parts and accessories. GAEV and its subsidiary s extensive list of appraisal experience includes: A remanufacturer and distributor of alternators and starters for imported and domestic vehicles. A producer and recycler of automotive and industrial lead acid batteries, with locations throughout the world. An internet retailer of aftermarket replacement automotive parts, including auto body and engine parts, as well as accessories, to customers worldwide. OEM parts suppliers to large automakers including manufacturers of transmission, interior, wheel, and accessory products. A distributor of replacement passenger, light truck, and commercial truck tyres including winter, four-season, and high-performance tyres. An importer and distributor of OEM replacement parts for major brands, including the Audi, BMW, Mercedes, Mini Cooper, Porsche, VW, and Volvo brands. A wholesale distributor and retailer of aftermarket automotive parts and accessories, including engine and exhaust components such as fuel injectors, steering and suspension parts, oil and air filters, performance parts, shock absorbers, chassis parts, gaskets, water/fuel pumps, brake drums and rotors, and other related aftermarket automotive replacement parts. A designer, manufacturer, and distributor of speciality products for the performance automotive aftermarket, specializing in motorcycles and boats, with products including fuel, air, and internal engine management systems, which are designed to enhance vehicle performance through generating increased horsepower and torque. A manufacturer and distributor of aluminium light alloy wheels, serving three OEMs in the automotive industry: VW, BMW, and Mercedes. GAEV and its subsidiaries have also liquidated a number of manufacturers and distributors of OEM and aftermarket parts, including Midas Corporation, Trak Auto, Smittybilt Outland Automotive Group, Inc., and American Products Company, Inc. In addition to our vast liquidation and appraisal experience, GAEV maintains contacts within the automotive industry that we utilise for insight and perspective on recovery values. 9

11 Monitor 10 Information The Automotive Monitor relates information covering most automotive products, including industry trends, market pricing, and their relation to the valuation process. GAEV provides our customer base with a concise document highlighting the automotive industry. GAEV strives to contextualise important indicators in order to provide a more in-depth perspective of the market as a whole. This publication will provide you with market value and industry trends for a variety of products within the automotive sector. GAEV internally tracks recovery ranges for parts, but we are mindful to adhere to your request for a simple reference document. Should you need any further information or wish to discuss recovery ranges for a particular segment, please feel free to contact your GAEV Business Development Officer. GAEV s Automotive Monitor provides market value and industry trend information for a variety of automotive products. The information contained herein is based on a composite of GAEV s industry expertise, contact with industry personnel, liquidation and appraisal experience, and data compiled from a variety of well-respected sources believed to be reliable. We do not guarantee the completeness of such information or make any representation as to its accuracy. About GA Europe Valuations Limited Based in the United Kingdom and focusing on European business, GA Europe Valuations Limited delivers appraisal services that accurately reflect the recovery value of assets such as stock, plant and machinery, accounts receivable, and intellectual property. The company is on the panel of all primary lenders and is a trusted partner to banks, private equity houses, and asset based lenders. 14 Berkeley Street Mayfair London, W1J 8DX +44 (0) Lancaster House 67 Newhall Street Birmingham, B3 1NQ +44 (0)

11 European Team Gordon Titley Head of Valuations gtitley@gaevaluations.co.

co.uk Main 0121 236 9992 Peter Bache FRICS Director of Appraisal pbache@gaevaluations.

Main 0121 236 9992 Ryan Mulcunry Executive Vice President rmulcunry@gaevaluations.co.

uk Main 0207 318 0570 Lester Friedman Chief Executive Officer, GA Advisory &

com (818) 746-9634 Milton Guffogg Chief Executive, GA Europe mguffogg@gaeurope.co.uk Main 0207 318 0570 U.

com (818) 746-9306 David Seiden Executive Vice President, Southeast Region

com (770) 551-8114 Bill Soncini Senior Vice President, Midwest Region

com (312) 777-7945 Ken Bloore Chief Operating Officer kbloore@greatamerican.

12 11 European Team Gordon Titley Head of Valuations Main Matthew Parker MRICS Associate Director Main Peter Bache FRICS Director of Appraisal Main Helen Kendrick MRICS Associate Main Ryan Mulcunry Executive Vice President Main Dan Edgar Associate Director Main Lester Friedman Chief Executive Officer, GA Advisory & Valuation (818) Milton Guffogg Chief Executive, GA Europe Main U.S. Team Mike Marchlik National Sales & Marketing Director (818) David Seiden Executive Vice President, Southeast Region (770) Bill Soncini Senior Vice President, Midwest Region (312) Ken Bloore Chief Operating Officer (818) Thomas Mitchell Project Manager, Automotive Parts/Petroleum Specialist (818) Drew Jakubek Managing Director, Southwest Region (972) Jennie Kim Vice President, Western Region (818)

European 1 Market. Automotive Monitor. February 2015 Automotive Monitor

European 1 Market. Automotive Monitor. February 2015 Automotive Monitor European 1 Market Automotive Monitor 1 European Trend 1 Tracker Market NOLVs: Values for OEM parts were mixed, as improved sales were offset by increases in lower-recovering inventory segments. NOLVs: