Industry Report by UniCredit Bank Austria:
Vehicle industry accelerated in the second half of 2017 resulting in an increase in production
- The vehicle industry ended 2017 with a provisional increase in production of 2% and with sales increased by 4% to around 16 billion euros
- Rising production figures and other increases in demand for the German automotive industry also ensure pronounced growth for 2018 and 2019
- The long-term good external trade performance demonstrates the competitiveness and innovative power of the domestic vehicle industry
Austria’s vehicle industry was able to offset production losses for the first half of 2017 and end the year with a provisional increase in production of 2%. The sector sales rose by around 4% to around 16 billion euros. “Driven by the sharp rise in incoming orders from individual companies and other increases in demand, primarily by German manufacturers, the vehicle industry should become the economic driving force for domestic industry once again,” analyses UniCredit Bank Austria economist Günter Wolf.
Short brake on growth in 2017 is recovered in 2018
In 2017, Austria’s vehicle industry was not completely able to escape the slowdown of automobile production in Europe, which is responsible for a significant portion of demand from domestic suppliers. The industry has suffered particularly from the declining sales figures for diesel vehicles in Europe. Until October 2017, exports of vehicle engines and engine parts were down 2.2%. The loss, which stemmed largely from a decline of almost 10% in exports with diesel engines, was only partially compensated for by an increase in exports with petrol engines. For the year as a whole, vehicle engines and engine parts to the value of 4.8 billion euros were exported in 2017, of which exported diesel engines represented 2.2 billion euros.
“The domestic vehicle industry in 2017 achieved an export growth of over 6%, despite lower demand for diesel vehicles until October. This result was above the long-term average of plus 5% for the last twenty years. Furthermore, this export growth is additional proof of the high competitiveness of the industry,” says Wolf. The higher export revenues were achieved with other vehicle parts and finished vehicles which, for 2017 as a whole, contributed to an Austrian export invoice of around 11.6 billion euros.
The outlook for the automotive industry over the next few years is subdued for all Western manufacturing countries, with growth in automotive production in Western Europe to be reduced from an average of 3% over the last four years to an average of 1% over the year. The German Association of the Automotive Industry still expects a production increase of 2% for its member companies until at least 2018; the premium manufacturers experiencing significantly higher growth rates to some extent.
Contrary to the Western European trend in the vehicle industry, industry growth in Austria should accelerate in 2018. An indication of this is the close relationship to the relatively successful German industry and in particular the very high employment growth of 11.5% in 2017, amounting to around 36,000 employees at the end of the year. The sharply increased number of new jobs is mainly due to the capacity expansion of individual companies, and a reference to filled order books and an upcoming production increase in automobile production. The vehicle industry is expected to continue to assume its leading role in growth in industry in 2018.
Austria’s vehicle supply plants are well positioned
The upcoming changes in the automotive industry will not pass by unnoticed in the domestic industry. In particular, jobs in the manufacture of diesel engines are at risk over the long term. In the short term, a “hard” Brexit poses a risk to the automotive industry in Germany and consequently an indirect risk to Austria, because of potential lost sales in Great Britain and rising costs as a result of import duties. Ultimately, car manufacturers and their tier one suppliers in Europe will probably shut individual plants as a result of existing excess capacity. Nevertheless, severe cut-backs with heavier job losses in the German or Austrian vehicle industry are unlikely. Both industries should be able to continue to secure an economically sustainable utilisation in the future with new models and technical innovation, such as converting their fleets to alternative drives.
In principle, the perspectives of vehicle suppliers are positive, as they establish potential cost savings for car manufacturers particularly through economies of scale, which are difficult to achieve especially in the premium segment due to smaller production figures. In addition, costs for research and product development increase with pressure to innovate, which is why car manufacturers will be more likely to hand over more production steps to their production partners.
Austria’s vehicle industry has proven its competitive advantage with its long-term success in exports. “Although no car manufacturers are located in Austria, vehicle import invoices were fully covered by the vehicle industry’s export earnings from 2002 to 2015. It is only in the last two years that the balance has returned to a negative again, as a result of a sharp increase in car imports. Based on the figures for the first ten months of 2017, vehicles and vehicle parts were exported from Austria at a value of 16.4 billion euros and imported at around 17.6 billion euros,” says Wolf.
The strength of the industry is based on its edge in productivity in the European industry environment. Companies can therefore compensate for the burden by high personnel costs. A workplace in the vehicle industry in Austria costs on average 63,000 euros, while the EU average is only 51,000 euros. Companies secure the edge in productivity with high innovation costs. For years, Austria’s vehicle industry has ranked as the most innovative in Europe, measured based on the fact that three quarters of companies there are “innovation-active” within the meaning of the European innovation survey. The basis for their innovative strength is high investment in research, which is above-average at around 3.5% of sales. By comparison, in Europe it is 3%.
Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;