While the world may yet breathe a collective sigh of relief at the end of Greek dithering and Italian grandstanding in the face of Europe’s biggest sovereign debt crisis since the 1930s, the continent’s automotive sector already seems be preparing for the worst.
As the crisis rumbled towards some sort of solution, two automotive sector announcements last week illustrated just how differently the turmoil in Europe is affecting automotive sector groups on both sides of the Atlantic.
Mergermarket figures show that the investor retreat from the European automotive industry has already become a rout.
On 4 November, Rheinmetall, a German automotive and defence group known for its robust results and canny management of market expectations, shelved the listing of its piston, actuator, solenoid valve and pump making subsidiary, Kolbenschmidt Pierburg – a move which had been expected to raise just short of €2bn (US$2.76bn). Yet on the same day, Delphi Automotive, the Troy, Michigan-based former parts division of General Motors, which emerged from bankruptcy just two years ago, was pressing ahead with the final details of a listing from which it hopes to make €400m. Too much might have been read into the gulf between these two perceptions of capital market appetite for automotive investment, had not Fiat only a week earlier indicated that it too would suspend an IPO, this time for Chrysler, also because of market conditions.
Why, then, does a US automotive supplier, relatively-recently emerged from bankruptcy, feel it has a better chance of getting its listing off the ground than the established European groups behind these European listing plans? While one could cite factors specific to these capital raisings, Mergermarket figures show that the investor retreat from the European automotive industry has already become a rout. While the total amount invested in M&A deals involving US automotive targets has so far this year more than doubled, and risen 86% for Asia Pacific automotive targets, buyers have cut by more than half the amount they are spending on the acquisition of European targets.
But talk to automotive analysts in Europe, and they will tell you that, for the moment at least, the financial performance of European automotive companies alone does not warrant this kind of discrimination among investors. And while European automotive shareholders may fret about a collapse in European confidence, companies like Delphi, which in 2010 derived 43% of its revenue from Europe, are equally as exposed.
While European automotive shareholders may fret about a collapse in European confidence, companies like Delphi, which in 2010 derived 43% of its revenue from Europe, are equally as exposed.
Or are they? A closer look at Rheinmetall’s Kolbenschmidt reveals the close relationship it has, in common with many of the continent’s other suppliers, with Europe’s OEMs such as Volkswagen and Daimler. Much the same could be said of Chrysler’s relationship with Fiat. In effect, investors fear a ‘double whammy’ both from the exposure of the OEM and that of their suppliers, whose interconnectedness has in the past seen manufacturers forced to acquire unique component makers just to keep the supplies coming in.
Add to that the very real possibility of a collapse in the currency in which so many of these suppliers and vehicle manufacturers are paid, and the problem becomes clear: for the European automotive industry, the outcome of the Eurozone crisis could be very nasty indeed.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Thomas Williams is deputy editor and head of German coverage for Mergermarket EMEA. He is also Mergermarket’s European automotive and industrials correspondent, and writes for the group’s live deals product, Dealreporter. www.ft.com/mergermarket
The AutomotiveWorld.com Expert Opinion column is open to automotive industry decision makers and influencers. If you would like to contribute an Expert Opinion piece, please contact editorial@automotiveworld.com
