Operating results plunged in 2005 up to 1

Equipment suppliers are implanted in the areas of production to low-cost in two phases. He was first to meet the local needs of manufacturers installed in the countries concerned. In this first phase, local content and logistics issues were crucial, while the question of the cost came to second. Note also that, both in South America and China, split volumes of vehicles did not until then to significantly increase the local content. Paradoxically, therefore, after more than ten years of industrial presence in China, one of the major concerns for PSA Peugeot Citroën is the local content: the 307 began in China at 55 and PSA is 82. The 206, which has just started at 76, expected to reach 90. Subsequently, the idea of producing low-cost using industrial sites of the emerging countries has emerged. And this idea was widely promoted by the falling prices of purchases of manufacturers. Can you imagine that this scheme applies to the complete vehicles That is the question posed by Euler Hermes, the number one credit in France. It is based on the emergence of new markets and the growth of auto sales in these regions of the world ( 14 over the past five years), while the overall increase is only 2.5. In five years, the sale of vehicles in all markets characterized as "rest of the world" from 9 million to 16.2 million units. More in details, note that sales by 50 in four years in China, and 12.5 in India. Along with this surge in demand, production is also in similar proportions: the number of vehicles manufactured in the "rest of the world" has almost doubled from 2001 to 2005.

Central Europe is exporting

And Euler Hermes compared more precise sales and developments of the productions in 2000 and in the different regions of the world in 2005. In Western Europe, "the registrations/productions balance is negative in 2005, which means that the production not there covers more registrations" notes Philippe Brossard, Director of research of Euler Hermes. Registrations have stagnated in Europe from 2000 to 2005, while production fell by 4.4. "In Europe, the Spain has been the clear loser in 2005 with a decline in the production of 10," adds Philippe Brossard. It should be noted that the Spain was formerly the "low cost" area of European production. However, since the beginning of the 1990s, with including the acquisition of Skoda by VW, we know that this role is now held by Central Europe. This movement is amplified in the last five years, to the point that the CEECs have become a net exporter area. In 2005, production/registration is 217.000 units. And this movement will intensify over the next years with the start of the new units for the production of PSA, Kia and Hyundai in Slovakia and Czech Republic. Already, the Group produced Renault 17 of its cars in the countries of Central and Eastern Europe (Slovenia, Romania, Turkey).

During these five years, production decreased by 9 in North America. In 2005, the difference between the number of vehicles sold in the NAFTA area and production amounted to more than 4.1 million units! Note that the Japan remains more than ever a net exporter of vehicles. The archipelago has produced 4.7 million vehicles that not in absorbed its national market. Indeed, Philippe Brossard stresses that "Toyota remains predominantly producer on Japanese soil. Indeed, the number two world produces 54 of its vehicles in the Japan, 22 in North America and 6 in Europe.

South America is also exporting vehicles, with a net surplus of 1.13 million vehicles. Finally, the area known as "rest of the world", in which the India, China and the ASEAN countries play a major role, has become, in five years, net exporter with a surplus of 534.000 units in 2005. Over the past five years, sales have increased by 72 and the production increased by 92. This comes at the time of the increase in local production capacity and production programs that integrate sites of these countries into the global device. This is the case of Suzuki in India, but the IMV (pick ups and SUV) of Toyota program.

The European manufacturers in the average

Euler Hermes has calculated, in a comprehensive manner, the profitability of the automotive sector: the average operating income deteriorated, from 4.7 to 3.9. The average net result is even more result with a 40.8 decline is a result of 1.5 of turnover. This degradation is both the weight of American manufacturers and the increase in raw materials. There is the poor performance of us manufacturers over the past five years. Thus, the net result of all, formed by the aggregation of GM and

Ford, ranged from-2,3 and 1.8 in the period 2000-2005, while the gross debt increased sharply. Just as worrying, operating income has melted in 2005 to only 2.5 of the CA. "This means that American manufacturers are structurally reorganization," said Yann Lacroix, automotive head in the Direction of the research of Euler Hermes.

The situation is different for Japanese manufacturers. Operating income is permanently registered between 7.5 and 8 over the past three years and average net income not deteriorated in 2005, rising prices of raw materials, to 4.3. The Nissan turnaround and good economic performance of Toyota and Honda are the source of this health. Worn by very favourable euro/yen parity, Japanese manufacturers are more that never "solid and the conquest of the world", Euler Hermes.

"European manufacturers are in an intermediate situation between the Japanese and Americans." Euler Hermes calculations show that their situation is evolving positively, both with an increase in operating results, 3.8 of the turnover and the net result. With 2.5 in 2005, it has doubled since 2003. As to the objective of an operating margin of 6 referred by some, Euler Hermes said that it was "a very ambitious objective for generalist manufacturers." Note that in Western Europe, European manufacturers should lose two points of market share of 2004 to 2006. These two points are recovered, on the one hand by Japanese them, and on the other hand, by the Koreans.

And the French

In this panorama, Euler Hermes estimated that French manufacturers will face a new erosion of their financial situation in 2006. Operating income fell to 3.5 in 2005 and is expected to reach 3.1. Swollen by the financial interests of Renault Nissan and AB Volvo, the net result is also reaching 4.2. The decline in operating income is explained by the increase in raw materials, the decline of product mix and the "late renewal of some models. Additional volumes are expected in 2007, first year of the 207 and Citroën Xsara 2.

Both PSA Renault are clearly at the heart of the issue "relocation relocation." Examples abound, whether the Peugeot 107/Citroen C1 or the 207 in Slovakia. In Renault, the second generation Twingo will be manufactured in Novo Mesto in Slovenia. This movement is to accelerate what already observed in the suppliers and subcontractors.

BOX .

Production costs, salary costs

The evolution of volumes produced in the different regions of the world is influenced by the costs of production. It is largely dependent on the exchange rate between the dollar, the euro and the yen. The euro does not favour the competitiveness of European production sites, in contrast to the policy followed by the Bank of Japan. Over the past five years, the yen has depreciated by 40 against the euro. Euler Hermes has compared the hourly wage costs in 2005: they amounted to 25.2 euros in euro area (28.5 in France, 27.6 in Germany and the United Kingdom 26.3). Note that in Romania, hourly costs increased by 50 in five years to reach 2.1 euros.

BOX .

European equipment manufacturers take their PIN of the game

Accustomed to more cultural diversity, European equipment suppliers suffered less severe conditions. The result of operation of the panel of Euler Hermes fell by 0.5 in 2005 to 2.7. Both Valeo Faurecia or Plastic Omnium are strongly implanted in the countries of Central Europe and Eastern, both for the local assembly sites and to produce at the best price.

In North America, equipment suppliers hard experience the difficulties of local manufacturers. Operating results fell up to 2.4 of the turnover, while the net results, expressed as a proportion of turnover, are negative for three years. Unsurprisingly, Japanese manufacturers have better balance sheets: operating results are close to 6.5 for three years and the average net result of the panel studied by Euler Hermes is 3.9. Of course, it is objected that these suppliers are in a particular situation: providers of their own shareholders, they evolve in a highly protected market. Financially speaking, Euler Hermes describes the situation of Japanese manufacturers of "very, very healthy."

The situation is much more difficult for French companies of subcontracting (1). Operating results plunged in 2005 up to 1.6, while the decline of activity and the increase in raw materials should result in a negative average result for all of the 4,000 companies considered by the panel of Euler Hermes. Already, nearly 1,000 subcontractors have disappeared from French soil for five years. These companies also suffered hard economies that manufacturers realize on purchases. Thus, PSA has saved, every year, 600 million euros on its purchases over the past five years.

Note: (1) code NAF 252 H, 275E 284, 284 B, 285 A and 285C.