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02.07.2008

Sector Report from the Bank Austria Group Economics Department: Slower economy brings losses for Austria’s automotive industry

  • Slump in sales of 3.3 per cent in 2007 can be offset at the earliest by 2010
  • Economic decline slows the automotive industry worldwide and leads to additional production cuts in Austria
  • Austria well positioned as a supplier location, near the premium German manufacturers and competitive in terms of price
  • Foreign trade surplus of €2 billion confirms competitive edge

Against the backdrop of an economic decline and the associated decrease in demand, Austria’s automotive industry saw losses in sales and cuts in production in 2007. The sector’s sales decreased by 3.3 per cent to €14.3 billion and production stagnated. Additional losses are expected for 2008 and are also likely in 2009. This is one of the findings from the most recent sector report by Bank Austria’s economists. Exports in automobiles and car parts only declined by 2 per cent in the first quarter of 2008, and manufacturers remained relatively optimistic in their production expectations during the entire first half of the year. However, although many areas of the sector are only moderately affected by the automotive industry’s poor situation at the moment, the sector has not been left unscathed.

“Austria’s automotive industry is a successful example of how, with the help of targeted economic aid, a critical mass of production capacities can be established that continually attracts additional investments of its own accord,” says Günter Wolf, an economist at Bank Austria. This process will continue in the future and is centred on a few large subsidiaries of international automakers and tier-one suppliers (tier-one suppliers produce parts exclusively for individual manufacturers). The close connection to the German automotive industry is essential to success. Despite the massive relocation of production facilities, roughly 40 per cent of all exports in Austria’s automotive industry and 62 per cent of its auto motor exports are delivered to Germany.

The automotive industry in Western Europe faces low levels of growth in demand and new competition from emerging markets, which will lead manufacturers and suppliers to shift additional capacities to more affordable locations with higher levels of growth in the future. This development will not leave Austria unaffected. However, Austria is well positioned as a production location and will not become any less important in the future. On the contrary: “Provided that companies maintain their high rate of innovation, Austria will still have good opportunities for growth as a supplier location in the future. In particular, this is a result of its close relationship to the premium segment in Germany and its immediate proximity to the markets experiencing intensive growth in Eastern Europe,” states Wolf.

Austria’s automotive industry is competitive. “The labour costs of the automotive industry in Austria average €50,000 per employee, which is four to five times more than labour costs for the sector in the Czech Republic and Slovakia. However, manufacturers are able to make up for these cost disadvantages with above-average levels of productivity,” says Bank Austria sector analyst Günter Wolf. Unit labour costs, where both of these indicators are combined, are not just significantly below the European average but are also only slightly above the levels of the automotive industry in Eastern Europe.

Ultimately, foreign trade results are an excellent indicator of how competitive automotive production is in terms of price. Austria’s trade balance in motor vehicles has turned from a €2 billion deficit at the beginning of the 1990s into a €2 billion surplus in 2007. Exports in automobiles and automotive parts totalled €16 billion in 2007 and imports amounted to €14 billion.

Enquiries: Bank Austria Press Office Austria
Tiemon Kiesenhofer, Tel. +43 (0)5 05 05 ext. 52819
E-mail: tiemon.kiesenhofer@unicreditgroup.at

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