Sectoral Report of Bank Austria Economics Department:
Austrian automotive industry continues to grow
- Vehicle industry remains a growth leader in industry in 2014 with estimated rise in production of 5 percent
- Successes of German automotive industry support Austrian suppliers; exports to Germany in engines and vehicle parts even accounted for total export growth in first half of 2014
- Export trade surpluses attest to competitiveness of Austria’s domestic vehicle industry – high level of innovation and willingness to research ensure the future success of the industry, though room for greater expansion is still restricted
In the 2013 financial year, Austria’s vehicle industry once again remained at the pinnacle of industrial growth: production increased by 7.7 percent and revenue grew by almost 10 percent to EUR 14.7 billion. In their current report on vehicle manufacturing, Bank Austria economists remain optimistic for 2014: despite an economic slowdown around the middle of the year, the industry is expected to achieve an increase in production of at least 5 percent, and thereby remain a powerful driver of domestic industry. The rapid recovery is heralded by increasing incoming orders and employment figures as well as significantly more optimistic production expectations among companies. In August, the assessment of export orders recorded a positive balance for the first time since March 2011.
Growth in Austrian vehicle industry pulled by German manufacturers
Bank Austria economist Günter Wolf: "In 2014, Austria’s vehicle industry benefited from the successes of German car manufacturers, which again reported a considerable acceleration in production as well as sales figures, despite a downturn in activity in the industry in recent months, especially in the premium segment." Germany continues to be a sales market, accounting for 58 percent of combustion engines and 51 percent of motor vehicle parts exported from Austria. Since 2005, German exports in both product groups have each made up half of total export growth and even carried all export activity in the first half of 2014. By June, exports of combustion engines had increased by 3.9 percent - to Germany by 4%. The export of motor vehicle parts stagnated overall, with an increase of at least 0.2 percent in exports to Germany.
Austria well-positioned and secure as supplier for the vehicle industry
The export performance emphasises the competitiveness of the Austrian vehicle industry. Since 2000, the total exports of vehicles and vehicle parts have risen by 57 percent, with imports growing 47 percent. Parallel to this, the trade balance went from a EUR 230 million deficit to a surplus of EUR 550 million in 2013. Bank Austria sector analyst Wolf: "The foreign trade surplus of the automotive industry means that the export revenue from Austrian motor vehicle parts was able to cover Austria’s net vehicle bill in the value of 2 billion euros – in the previous year, vehicle exports amounted to EUR 6.1 billion compared to EUR 8 billion in imports."
The basis for the competitive strength of the domestic vehicle industry is its edge in productivity, which in turn ensures a relatively moderate unit labour cost burden despite the relatively high personnel costs. At an average of EUR 61,000 per employee, the personnel expenses of the Austrian automotive industry rank among the highest in Europe in the industry, though labour costs lie below the European average. Measured in terms of unit labour cost development, locations in Eastern Europe have also lost a lot of their ability to compete on prices in recent years.
The capacity for innovation that companies possess is responsible for the high level of productivity in Austria’s vehicle industry. Some 77 percent of companies are classified as being active in the field of innovation in accordance with the EU innovation survey – this figure stood at 71 percent in 2004. As a result, the sector in Austria ranks in second place behind Germany in the EU comparison, which boasts a figure of 88 percent in actively innovative companies. Sector analyst Wolf: "The level of innovation in the industry and its high commitment to research and development have increased considerably. The proportion of R&D expenditure compared to revenue stands at 3 percent in the automotive industry, which is considerably higher than the Austrian industry average of 2.1 percent. This is remarkable considering that there are no car manufacturers based in Austria. The R&D share of the German automotive industry stands at 4.3%."
Limited scope for stronger expansion
Vehicle sales in the EU-27 have decreased by 24 percent since 2007 to 11.9 million vehicles, with the growth in Eastern Europe not being able to compensate for the losses in Western Europe. The market is expected to recover in the coming years, but will not grow considerably in the long term above the new registration record of 16 million vehicles in 2007. The weak population growth, the high level of motorisation and the already heavily limited opportunities for expansion make this unlikely.
Despite the modest sales outlook in Western Europe, the vehicle industry continues to grow at EU level. Driven by export demand, PriceWaterhouseCoopers expects an increase in vehicle production in the EU-27 of almost 4 percent over the coming years. Crucial factors for domestic car suppliers are the relatively positive outlooks for German premium manufacturers. The Centre for Automotive Research in Duisburg, Germany is expecting growth in the global demand for premium vehicles of 5.6 percent per year until 2030. Parallel to the above-average rise in sales figures in the premium segment, an innovative supplier network is gaining in significance, as manufacturers are increasingly expanding in the mid-class segment with lower profit margins and efficiency pressure is growing. However, the value chain in car manufacturing is becoming more and more international, with production increasingly being localised in central growth markets in the industry, primarily in China; the industry’s export potential is weakening in Europe as a result.
Bank Austria economist Günter Wolf summarises: "The growth of the automotive industry in Austria is secured in the medium term. At the same time, more comprehensive investment into expansion in the industry is becoming less and less probable in an environment where the demand for cars will not continue to grow in the long term, and the industry in Austria as well as in its central sales markets has already reached an above-average export ratio. The vehicle industry can do little more to improve its good competitive position on an international level, and it therefore also has limited scope to expand further."
Enquiries: Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0) 50505 - 41954