Market Monitor Automotive Italy 2016

• Robust rebound in production continues
• Many businesses improved their financial strength
• Insolvencies are expected to level off in 2016

The whole automotive and automotive-related sector in Italy consists of 145,000 businesses with 485,0000 employees. In 2015 the industry benefitted from robust global and domestic car demand. According to the Italian National Automotive Industry Association (ANFIA), domestic automotive production increased 45% year-on-year in 2015, to more than 1,000,000 units (65% passenger cars, 31% light commercial vehicles, 3% trucks and 1% buses). The share of exports increased from 54% in 2014 to 58% in 2015. The positive trend continued in 2016, with car production increasing 17% in Q1 of 2016.

In H1 of 2016 domestic passenger car registrations increased 19.1% and commercial vehicles registrations rose 30.8%. However, this surge in production and registrations must be seen against sharp decreases in the recession years after 2008.

The rebound in domestic demand is mainly due to the currently modest economic recovery, coupled with low interest rates, low fuel prices, easier access to consumer credit and appealing promotional campaigns by car manufacturers. Demand growth could slow down in the coming months, if the promotional campaigns end and fuel prices rise again. However, given that 45% of passenger cars and light commercial vehicles in Italy still do not meet the Euro 4 emission standards, there is future potential for sales growth of new vehicles replacing obsolete models.

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, the surviving supplier businesses have registered increasing profit margins and an improvement of their financial strength.

On average, payments in the Italian automotive industry range between 60 to 90 and 120 to 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. Payment experience has been satisfying over the past two years, and non-payments are not expected to increase in the coming months. Automotive insolvencies have decreased in 2014 and 2015 and are expected to level off in 2016.

Considering the good performance of the industry, we have further relaxed our underwriting stance. A more cautious approach is still applied on components manufacturers, having low bargaining power against car manufacturers, and on steel components manufacturers, as persistently low steel prices could lead to inventory devaluation.