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These are the three key words that have temporarily allowed the Italian automotive supply chain to soften the negative impact of vehicle manufacturing and sales in Italy

Renzo Dotti

FOR SOME TIME now, talking about the car crisis has been way too easy. Close scrutiny of the harsh technical and other figures provided every month by Anfia and Unrae has shown the frequently pitiless collapse of vehicle sales in Italy and, as a consequence, reductions in production and, unfortunately, labour.
The fact remains that in order to have a global vision of what is really going in the complex world of motor vehicles, all the companies that are involved in the manufacture or assembly of vehicles in Italy must be taken into consideration.
It is obvious that the typical activity of a factory is the assembly of the components provided by the hundreds of suppliers and manufacturers that make up Italy’s so-called automotive supply chain for the cars, commercial vehicles, buses and trucks that leave the factory gates.
The term components industry, in the car sector especially, refers to the subcontracted manufacture of all the components for engines, transmissions, brake systems and precision mechanical parts connected to the supply chain and other processes.
For several years now, this has been the particular subject of an in-depth survey by Turin Chamber of Commerce in collaboration with Anfia and, this year, with the Chieti Chamber of Commerce, the last version of which was presented in Turin on 10 July.

Data that make you think
Following the full revision and updating of the Observatory’s database, the survey carried out by Step Ricerche outlines the situation in the Italian supply chain in 2011 and the first few months of 2012 based on 272 questionnaires and an analysis of the balance sheets of 2,489 joint-stock companies.
Starting with assembled cars, it shows that the substantial strength of 2010 was followed in 2011 by a downturn of 5.7%, a total of 790,000 assembled vehicles. This aggregated dynamic conceals opposing trajectories in different segments: while increasingly fewer vehicles (-15.3%) and buses (-22.7%) are made, last year there was a recovery, from a manufacturing aspect at least, in the commercial (+14.5%) and industrial (+20.1%) vehicles sectors. Piedmont, where 898 joint-stock companies have their registered offices and guarantee employment for over 94,000 people, is confirmed as the primary region in the automotive sector.
In 2011, the increase in revenues (+2.3%) meant that automotive firms in Piedmont achieved a total turnover of 19 billion euros, 45.5% of the national aggregate of 41.8 billion euros. Breaking down the result by manufacturing sub-segments shows that those most affected by the downturn in domestic production were firms that make modules or systems for cars, which traditionally rely more on local production. The firms that provide engineering and design services also encountered problems due to the slowdown or in-house design of new products; the situation was less worrying for the manufacturers or subcontractors of specific components that in recent years have been able to beat competition by diversifying their outlet markets.
It must be emphasized that the crisis affected not only company revenues but also plant use and, therefore, the number of people required to carry out the work. 51% of the companies interviewed at national level (rising to 75% in Piedmont) declared that from 2008 to date, they have had to resort to the more or less substantial use of ordinary and extraordinary redundancy funds. And year-end prospects do not give much hope for a reversal of the trend.

Fortunately, there’s export
Despite everything, some positive news has come from Italian firms: although under pressure because of the continual downturn in production in Italy and on the Continent, the majority of the data describes a supply chain that has reacted by finding the resources necessary for acquiring new sources of revenue. Symptomatic of this is the fact that exporters now outnumber the suppliers of the Fiat group and the trend is confirmed in absolute as well as relative values by the continually increasing penetration of foreign markets by Italian products.
77% of the firms in the sample have been able to export, so much so that revenues from outside our borders represent 57% of the supply chain’s total turnover. This positive trend is confirmed by ISTAT data which quantify the value of Italian exports of parts and components at 19.1 billion euros. Growth of 16% compared with 2010, a level that has never been reached before. Obviously, it has become convenient, or even necessary, for firms to invest in order to acquire orders from abroad due to the simple fact that production overseas has almost always increased more than in Italy over the past 10 years. Although banal, exporting nowadays is a prerogative for diversifying sources of revenues to cope with domestic problems and foreign competition.
All the sectors that make up the supply chain have taken this direction: specialists that aim at product quality and innovation; the manufacturers of simpler parts that have been able to make their components known and have made significant progress in terms of commercial penetration; the providers of E&D services that are historically accustomed to looking beyond our borders. Lastly, there are suppliers of modules and systems that have always preferred local manufacturers because of logistical and product reasons; they, too, have had change their habits and aim at components that can also be exported.
As to the destination of the goods manufactured in Italy, the most important markets still appear to be concentrated in western Europe, even though the central European, North American, Chinese, Brazilian, Turkish and North African markets have grown considerably in recent years.

Quality, flexibility, collaboration, networks and green tech
An analysis of the results of the survey shows that 73% of the firms declared that the quality of their product or service is their greatest competitive leverage, whereas one firm out of five aimed at the flexibility that enables them to respond to production peaks or modifications requested by customers. The number of those who leverage price (21.3%) is still low but increasing compared to last year when it was 12.6%.
The keenness to work outside company confines by collaborating on shared projects is very interesting. Projects with other companies are not solely commercial (almost 40% of the sample), 34% of the firms that responded have invested in R&D and production. This implies structural changes to the organization model and sharing a significant percentage of their resources, but without losing their identity and entrepreneurial vitality.
Numerous players in Italy have understood this and now take advantage of the organization of a network of firms. This contractual tool is based on the growth of its members’ level of competitiveness by leveraging innovation and sharing programmes and resources. An example is Rete Automotive Italia: at the end of 2011 it signed an agreement with 56 firms operating in Abruzzo, Basilicata and Campania.
Lastly, deserving of mention are the firms that are very active in the area of green technology: 43% have recently promoted projects and investments in this sector and particularly in new hybrid and electric engines for which they are creating and marketing more efficient components or alternative materials. Over the next ten years, current engine types could be affected by new technologies or car models that would also lead to changes in the design of vehicles and certain systems (traction, cooling, stocks, etc…). Being unprepared would make it impossible for a firm to ensure its survival.

• Profound crisis without Fiat
485,000 vehicles made in 2011, forecasts of below 400,000 for 2012. And after the fairly good results of last year, a downturn is also expected in the commercial and industrial vehicles sector. These are the figures that invite reflection, especially if compared to the almost 2,000,000 vehicles assembled in France and 5,800,000 in Germany. Although the automotive supply chain’s dependence on Fiat has gradually diminished in recent years after the falloff in national production, so much so that one firm in three no longer has any commercial relationships with the Turin group,  it is still a determining factor in the future of Italy’s components industry. The sudden closure of one factory would have disastrous consequences and already various firms are cutting down investments in Italy because the volumes do not make them worthwhile.
The concept was aptly summed up by Mauro Ferrari, chairman of the Anfia components group, according to whom “it is unrealistic to think that an important components industry can exist in our country in the absence of an important manufacturer.” It sounds like a refrain from an old advertisement for a famous brand of brushes, but it is a harsh reality that we may have to face up to very soon.

• Deficit between closures and new firms
In the past three years, the Observatory has recorded the closure of 299 firms whose turnover in 2007 was still two billion euros, compared with only 49 new businesses. The first significant fact is that there is absolutely no correlation between trades or specializations in this specific group, an indication that one trade is not penalized more than any other. The main reason for the closures is that they were unable to handle competitive leverage (product diversification, outlet markets, innovation and collaboration) but also the lack of a significant organizational structure, if it is true that more limited companies than joint-stock companies closed.
As to the new companies, it is significant that they are primarily limited companies (only 4% are joint-stock companies), one out of four is based in Piedmont and more than half of them (55%) are part of the automotive supply chain but specialize in metal working, machinery manufacture, chemicals and plastics, electrical equipment manufacture, electronics and engineering services. In short, diversification that is like a parachute in a moonlit sector.

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