1st ICAI 2020

International Conference on Automotive Industry 2020

Mladá Boleslav, Czech Republic

et al., 1998, Gereffi et al. 2005). Two thirds of German automotive sales are conducted abroad, as well as one third of the German industry in total (Bormann et al., 2018). Another significant group of countries are localities with a relatively low share of automotive turnover to GDP, but with a very high operating profit margin. These countries include Ireland, Luxembourg, Denmark, Lithuania, Latvia, Estonia and the Netherlands. In terms of the absolute volume of EBIT generated (in EUR), the Netherlands is clearly the most significant of these countries. It can be assumed that the Netherlands is an attractive location for the automotive industry to transfer the generated profit in various tax-efficient ways (e.g. through royalties), hence the revenue generated here is relatively low while EBIT is relatively high. The automotive industry of the EU-27 does not create value for owners in the long run. This unexpected finding is in accordance with the findings of Brandenburg (2015) who concluded that the European automotive industry, in the long run, struggles with significant performance deteriorations and considerable value losses. Brandenburg (2015) regards inefficiency in operating profit margin (especially costs of goods sold) and insufficient working capital performance as the main reasons for this finding. The main producers of negative EVA are Italy and especially Germany. Germany has an above-average operating profit margin, but on the other hand, the turnover of capital employed is one of the lowest in the EU-27. The local automotive industry is over- invested. Fixed assets generate low sales and net working capital is conservatively high. German automotive producers make use of debt with lower cost of capital compared to equity (ratio of debt to capital employed is highest among the EU-27), which, together with the country’s excellent rating, is reflected in the low weighted average cost of capital (WACC). However, even this fact cannot compensate for the excessive amount of capital employed. Italy has a low operating profit margin, which is one of the lowest among the EU-27. The turnover of capital employed of the Italian automotive industry is significantly higher than in Germany. Italian automotive companies use more equity for financing, which is partly off-setting the high country risk premium in the cost of equity (Baa3 rating compared to AAA of Germany).

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