Automotive industry faces crunch as production set to nosedive in Western Europe, survey reveals

BY James Williams

Automotive production in Western Europe will be less than 5 percent by 2030, according to KPMG’s ‘Global Automotive Executive Survey 2017’ – its annual state of play analysis of the industry.

Following the UK’s decision to leave the European Union (EU), 65 percent of automotive executives believe that the EU as it is today “will be history in 2025”. This scenario would not only jeopardise the free trade zone within the EU, but also “disruptively affect the automotive industry worldwide”.

Now in its 18th year, the study assesses the current state and future prospects of the worldwide automotive industry, gathering the opinions of almost 1000 executives from 42 different companies.

Respondents believe that the end of the EU would trigger an automotive production shortage in Western European countries by 2030 – in addition to the globalisation and development of China’s sales market – which would see car production fall from 13.1 million to 5.4 million within 13 years.

The survey states: “Not only will macroeconomic risks and geopolitical turmoil have a significant impact on the automotive sector in Western Europe, the emergence of China as the most important automotive sales market will also lead to dramatic dependencies for some auto manufacturers in the region”.

Furthermore, 76 percent of executives agree that China will dominate more than 40 percent of its global share of vehicle sales by 2030, and will continue to keep its “pole position as world leader for sales in the automotive industry”.

It is also estimated that China would need to sell a total of 43 million vehicles to reach its predicted figure. Over 56 percent of global executives believe that the country is a “high growth market for traditional and mass volume manufacturers”.

The survey notes that “China is absolutely seen by executives as a high growth market primarily for mass and volume manufacturers as well as for premium manufacturers. This leads to the conclusion that innovations will be developed for China but not necessarily by Chinese players”.

Overall, the effect of Brexit could prove to be more damaging to Western Europe than first thought. The threat of a depleted EU could see British automotive trade diminish.

Report: ‘Global Automotive Executive Survey 2017’

The shape of things to come

BY Richard Summerfield

As 2016 demonstrated, we live in changeable, unpredictable times. Regardless, PwC has offered a bold forecast for the state of the global economic order. In a report released this week, 'The World in 2050', PwC sets out its long-term global growth projections to 2050 for 32 of the largest economies in the world. Those countries account for around 85 percent of world’s GDP.

According to PwC, the global economy could more than double in size. It forecasts cumulative global GDP growth of 130 percent between 2016 and 2050. Much of this growth will be seen in emerging markets, which could grow at twice the speed of developed nations and see their of global GDP rise from around 35 percent to around 50 percent by 2050.

China will most likely be the largest economy in the world, accounting for around 20 percent of world GDP in 2050. In total, six of the seven largest global economies will be found in the emerging markets. Mexico and Indonesia could emerge as significant forces in the coming decades. In order for emerging markets to realise their long-term growth potential, they will need to enhance their institutions and infrastructure. Greater investment in education, infrastructure and technology is necessary. Diversifying their economies will also help with sustainable growth.

By contrast, developed markets such as the US will not fare as well. The US could be down to third place in the global GDP rankings behind China and India. The EU27’s share of world GDP could fall below 10 percent by 2050. The UK could drop to 10th place.

But these various levels of economic growth are dependent on political and economic policy decisions. As John Hawksworth, chief economist at PwC UK, notes, “a populist backlash against globalisation, automation and the perceived impact of these trends in increasing income inequality and weakening social cohesion” will pose a genuine threat to growth, both in the developed and developing worlds.

He continues: “There is no silver bullet to address these concerns. They require determined efforts by governments to boost the quality of education and training, and address perceived unfairness through well targeted fiscal policies. They also require real political leadership to resist calls for increased protectionism and maintain momentum on longer term issues like climate change and global poverty reduction.”

Report: The World in 2050

Greece debt crisis: new survey shows how ordinary Greeks view €86bn European bailout

BY Fraser Tennant

Amid ongoing electoral tensions, domestic debates and political struggle, the beleaguered citizens of Greece have had their say – via a nationwide survey – on the progress of bailout talks, the stability of the Greek economy, the viability of Grexit, as well as the job being done by the Syriza coalition government to keep the country afloat.

Coinciding with a stall in talks on the conclusion of the second review of the Greek bailout (the result of two unsuccessful Eurogroup meetings held in December 2016 and January 2017), the survey highlights what ordinary Greeks think about their status as an under pressure European Union (EU) member state – one which, if it does not receive a new tranche of financial aid under its €86bn bailout by the third quarter of 2017, risks defaulting on its debts.

The German government announced last week that it remained united on the need to stabilise the Greece economy, despite a clear divergence of opinion between Chancellor Angela Merkel's conservatives and their Social Democratic coalition partners on how this can best be achieved going forward.  

Among the key findings of ‘Nationwide Survey in Greece: Bailout Talks, Assessment of Syriza coalition government’ are: (i) the Syriza party remains ahead of the opposition New Democracy party by a narrow margin (Syriza has led the polls since January 2015); (ii) the undecided voters pool is "getting bigger" and has exceeded 30 percent for the first time since September 2015; (iii) the German government is being blamed by 67 percent of Greeks for the big delay in concluding the Greek bailout review; (iv) the majority of Greeks do not consider Grexit to be a viable alternative (71 percent consider the economic policy that has been implemented as "problematic"); (v) the role and stance of opposition parties, especially in the economic filed, is perceived to be “insufficient”, with 70 percent indicating a lack of alternative solutions and policies; and (vi) prime minister Alexis Tsipras is held to be the most popular leader followed by opposition leader, Kyriakos Mitsotakis.

Furthermore, the survey highlights hopes that the bailout programme will be the “last one”, a view held by 44 percent of Greeks.  

With time clearly pressing on all sides, the coming months are likely to see further disruption, with the next Eurogroup meeting later this month, while not exactly make or break, highly significant for the Greek economy and its people, ordinary or otherwise.

Report: Nationwide Survey in Greece: Bailout Talks, Assessment of Syriza coalition government

Brexit will be “hard” and pose “complex” operational challenges for banking industry, says new report

BY Fraser Tennant

Brexit will be “hard” and pose “complex” operational and transformational challenges for banking services in the European Union (EU) and beyond, according to a new report compiled by PwC on behalf of the Association for Financial Markets in Europe (AFME).

“The report, ‘Planning for Brexit – Operational impacts on wholesale banking and capital markets in Europe’, aims to provide policymakers and other industry stakeholders, both in the EU27 and the UK, with a fact-based analysis of how these challenges are likely to affect the financial services industry”, said the AFME in a statement.

To compile the report, PwC gathered information from previous case studies and from 15 banks spanning a range of sizes, activities, origins and legal entity structures. They include those EU27 headquartered, UK headquartered and non-EU headquartered banks.

One of the key findings in the report is that the Brexit transformation will be highly complex for wholesale banks as it contains many interdependent activities. Those firms providing a significant proportion of current industry capacity need to execute transformation programmes which will extend beyond Article 50 timescales. In some cases this may be up to three years after Brexit has been completed or even longer if the post‐Brexit trading relationship between the EU and UK remains unresolved for a protracted period.

Furthermore, in executing their transformation programmes, banks will be heavily dependent upon timely approval of licences by their new EU regulators – a critical step in the implementation of new business models which is likely to occur at a time when regulators will see a peak in requests following Article 50 activation.

In order to assist the wholesale banking and capital markets industry support European corporates and continue to help growth across all of Europe, the report recommends that policymakers: (i) clarify with each industry participant as soon as possible the structure of any interim business models that may be deemed acceptable immediately post‐Brexit; and (ii) clarify as soon as possible any future permanent terms for the provision of wholesale banking and capital markets services between the UK and EU post‐Brexit.

The report also states that, following Brexit and agreement of any new market access arrangements, an implementation period of at least three years must be provided to allow banks to complete their adaptation and 'grandfather' transactions that are in force at the time that the UK leaves the EU.

News: Banks must plan for 'hard' Brexit, industry report warns

Tesco’s Booker prize

BY Richard Summerfield

British supermarket chain Tesco PLC has announced that it is to acquire food wholesaler Booker Group plc in a deal worth around £3.7bn.

Under the terms of the merger, Booker shareholders will receive 0.861 new Tesco shares and 42.6 pence in cash for each Booker share held. Based on Tesco's closing share price of 189 pence on Thursday 26 January, the day before the deal was announced, the deal represents a value of 205.3 pence per Booker share – a premium of about 12 percent.

Booker stakeholders will control around 16 percent of the newly merged company once the deal has been completed. The companies believe that the merger will create synergies of at least £200m in the first three years. Though implementation costs could be around £145m, the savings will likely come from procurement, distribution and central functions. The deal will boost earnings per share in the second full year of the deal, the companies said in a statement.

Booker, a cash and carry wholesaler which supplies food to 120,000 independent retailers nationwide, as well as owning the Londis, Budgens and Premier brands, will provide Tesco with an entrance into the food service industry. Booker also supplies a number of high-street restaurant chains and pubs.

The deal and subsequent transition into the catering sector is the latest step in Tesco’s remarkable turnaround. Just two years ago Tesco was in the midst of an accounting scandal and experiencing a declining share of the UK’s grocery market. Today, however, the company is on a much firmer footing.

Dave Lewis, Tesco’s chief executive said: “Tesco has made significant progress in turning around our UK retail business. This merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”

Charles Wilson, chief executive of Booker, said: “Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”

Tesco has heralded the advantages of the deal, claiming that the tie-up will grant suppliers access to additional customers. The firm also believes that independent retailers will be given more choice. Tesco will gain exposure to around 120,000 independent retailers, 107,000 small businesses and 450,000 caterers by absorbing Booker.

But given the size and scale of the new company, there is an expectation that the UK Competition and Markets Authority will place the deal under intense scrutiny. The takeover, should it go ahead, would create the UK’s biggest wholesale and retail food business, with combined annual sales of more than £60bn. Tesco currently enjoys a 28 percent share of the UK grocery market.

News: Resurgent Tesco surprises with $4.6 billion swoop for wholesaler Booker