Italy Economy Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?

Sunday, October 15, 2006

Fiat And Industrial Output

Paris raises in the comments section (Italian link) the recent strong performance from Fiat in the car sector:

Fiat SpA, Italy's best performing stock, increased its sales in Europe by 15 percent in September, the fastest growth among the major manufacturers, while the overall market fell by 2.6 percent.

Fiat sales, including the Lancia, Alfa Romeo, Ferrari and Maserati marques, rose to 94,540 cars in September from 82,462 a year earlier, thanks to the Fiat brand, whose sales jumped 19 percent, the Brussels-based Association of European Automobile Manufacturers said in an e-mailed statement today. Fiat group nine-month sales grew 18 percent to 893,240 cars, compared with a European average of 0.1 percent growth.

``Fiat is for sure doing very well under an industrial point of view. In this moment, it is the best carmaker in Europe for growth potential,'' said Gianpaolo Rivano, who manages about 200 million euros ($251 million) at Gesti-Re SGR SpA in Milan.

Indeed the rise in September sales (remember that confidence index) was particularly spectacular:

Fiat's September sales in Italy grew 5.9 percent, helped to growing demand for Grande Punto and Panda models, the two best- selling cars in the country, the Ministry of Transportation said on Oct. 2. Combined sales at Fiat brands advanced to 55,907 vehicles from 52,772 cars.

This progress is even more astonishing, since as Paola points out in comments, the European car market is in a very sorry state:

Renault SA and General Motors Corp., suffering from a lack of popular new models, led the fourth monthly decline in European car sales in September as fuel prices rose.

Sales decreased 2.6 percent from a year earlier to 1.41 million vehicles, the Brussels-based Association of European Automobile Manufacturers said in a statement today. Nine-month sales inched up 0.1 percent to 11.8 million vehicles......

``The big markets worldwide, which includes Europe of course, are saturated and largely stagnant,'' said Robert Heberger, an analyst at Merck Finck in Munich. ``Unemployment and higher fuel prices are playing a role as well as the fact that the French carmakers' products and GM's to some extent have aged.''

So the first thing to note is that Fiat have some good new models, and they are gaining, at least in the short term, market share. Questions however remain:

i) What kind of offers were Fiat making to get these results? This is a straight question, since I simply don't know, so can anyone fill this in. Obviously it is one thing to get sales, and another to get profitable sales, as we have seen with Ford and GM in the US in recent years (and we have also seen the monthly volatility which goes with the 'offers' season).

ii) Where are the components for these cars being made (indeed where is the assembly being done?). If all of this is still happening in Turin then the news isn't anything like as promising as it might be. Basically this thought relates to a point Sebastian Dullian is making on Eurozone watch blog about how, while unit labour costs in Italy are rising, they are not rising anything like as fast as they are in Spain.

Now as Paris often kindly points out I am not based in Italy, but in Catalonia, Spain. So I am in a position to make some sort of comparison here. Basically Catalonia was the industrial centre of Spain (together with the Basque Country) during the industrial age. But ongoing inflation and generally rising living standards mean that Spain is no longer at all competitive in many of the industrial sectors, and in particular the automotive one. Catalonia used to boast one of the largest concentrations of car component manufacture in Europe, but those days are now long gone. Most of the component companies were, like their Italian equivalents, small family type businesses, and these have now largely migrated to Eastern Europe, and even assembly itself is only hanging on by a thread since the Spanish government pays to keep it going (a luxury which may or may not be advisable, but which the Spanish government is in a much better position than the Italian one to permit itself since the budget is in surplus and the debt to GDP ratio is well within the EU guidlines).

So the question is, how effectively is Fiat leveraging outsourcing in Eastern Europe, and to what extent is this increase in output being achieved by retaining low paying employment in Italy?

Paola also raises two more interesting questions: the degree to which the recent increase in industrial production has been a Fiat story, and to what extent is this increase sustainable in the future (ie won't the competitors respond?). Thus Paola:

Paris is right; there has been an increase in Italian Industrial Output. I went to look closely at the statistical data for the period Aug 2005 - August 2006 and the comparisons between Period January-August 2006 and January-August 2005. My feeling is that the growth is largely due to one company's performance: FIAT, the largest company in Italy. Not surprisingly, given that their revenues and market share have grown steadily in the last year. In spite of some fluctuations, the change in output of other sectors average out to a minimal increase in total industrial output. If I am correct with this analysis, then the next questions to ask are: Why Fiat is performing so well, while the automobile industry is stagnant? And Is FIAT performance sustainable in the future? Lastly, will a superior performance in one industrial sector be enough to push the whole economy also in the future, in order to account for growth in macroeconomics models? I do not know the answer for any of these questions, but I will try to give my opinion about the first one. Fiat, in my eyes, has recently changed management, acquired a fresher look and launched some new models that have better quality than they used to have. The company has realized that Europeans would not buy low quality cars at average prices unless they do not have any other choice, that the Italian Government would not rush to save the company's finances any more (better start selling people what they want!), and that nowadays marketing is an important Department... All this while some competitors (such as the Peugot case reported by the Bloomberg article) are sleeping and have lost market share in Europe.

Update: Well to some extent I have answered my own question, since this article from Polish radio explains the strong performance being achieved in the Tychy plant:

Fiat, Poland’s traditional market leader has maintained its lead in the assembly of new cars. Fiat officials say that three shifts are working 6 days a week at their factory in Tychy in the South, to satisfy West European orders.

And of course the link Paris supplied shows workers at the Melfi plant in Southern Italy.

Also amid all the cheering lets not forget this:

"In Western Europe, new-car sales only increased in Germany, by 4.5 percent, as Europe's largest economy — and second-biggest car buyer — finally went shopping after years of little growth. Car sales dropped 13.3 percent in France, Europe's fourth-largest car market, and by 3.2 percent in Italy. Britain, the biggest purchaser of new cars, saw sales fall just 0.7 percent to 413,991. (September data)"

Now this is important since the extra sales in Germany undoubtedly have some relation to the forthcoming 3% VAT increase, which means that in any rigourous accounting exercise part of them should be counted against 2007, since purchases brought forward will mean less sales to come.

or this:

Italy's Fiat SpA saw sales surge 14.9 percent compared with a year ago. Its core Fiat and luxury Alfa Romeo cars proved more popular, although Lancia sales were down. The company ended 17 successive quarterly losses by reporting higher profits in the final quarter of last year.

Update 2: Paris has kindly found us a link in English on the Fiat turnaround.(Hat-tip FxTalks). The results are obviously impressive, and more impressive I admit than I initially appreciated. Fiat is obviously on the attack again after some very bad years, and seems to be leveraging some substantial productivity improvements, as well as having some obviously popular design ideas.

It would now be interesting to see this spreading across more sectors. However, unfortunately, we are far from out of the woods yet. If we look at the other 'elderly' economies, Japan and German, both have been able to introduce substantial reforms to make their most competitive companies even more competitive, so much so that they are obviously now far more efficient than all but the best US companies. This however does not solve their outsanding macro problem which is how to generate additional internal demand, increase their tax base, and be able to sustain their welfare services. Having globally succesful companies just isn't enough I'm afraid. This nut is a hard one to crack.


Paris ib said...

I take it you don't speak Italian, hence you rely on Bloomberg. This is a pity because I don't think you get the same information from a non-Italian news source.

So let me translate some salient features of the article I cited:

The negative trend in auto sales continues in Europe, but Fiat is not feeling the crisis.

In September new registrations for the industry as a whole were down 2,6% year on year. The Fiat group, however, registered an increase of 14,6% in sales with respect to a year earlier. In the first 9 months of the year FIAT registered a rise of 17,8% and its market share rose rose from 5,7% to 6,7%.

Fiat saw good results in all the main European markets. In Germany its market share rose to 1,9% (up 0,5 on a year earlie) and sales rose 43,4%. In France, its market share rose to 3% (+0,6%). In Great Britain, market share rose to 3% (from 1,9% a year earlier) and sales were up +53,6%. In Spain, market share rose to 3,1% (from 2,7%) and sales were up +5,9%.

In western Europe volumes rose 18,6%, versus a rise of just 0,1% for the market as a whole in the first nine months of a year. FIAT's market share rose to 7,6%, from 6,5% a year earlier.

An increase in market share is a positive result. And this was seen in all markets, so please don't try and write it off as something to do with Germany increasing its VAT next year. Nor does it explain the increase in sales and market share in Great Britain.

Please at least REPORT THE DATA. Obviously you have a problem because you don't speak Italian.

Don't SPIN the data to suit your negative analysis unless there is some scientific basis for that SPIN. I can see none.

At the very least just produce the numbers and let readers judge for themselves. If you have no particular connection to Italy, no understanding of how the Italian economy works and don't speak Italian I really question your decision to concentrate your analysis on Italy. Where is your expertise and your authority?

Edward Hugh said...

Just a silly point Paris, my spoken Italian is as you say, extremely ropey, but I read Italian just fine.

I don't speak Portugese too good either, but again reading it isn't a big problem. I am a European, Catalan is my second language and French my third, Spanish my fourth. I think with a bit of effort I could pick up Romanian quite easily. Romance languages aren't that different one from another. OTOH what is all this petty nationalist stuff, aren't we all Europeans now? Isn't that what the EU is all about, what happens in Italy is as much my concern as it is yours.

I don't think there was any issue about the fact that Fiat market share went up, the point is that European sales in cars are flat, apart from the German spike, and that this isn't an industry to be relying on at this point in your history.

Do you have any info on Fiat and outsourcing, this would be interesting to assess sustainability? You seem to have the crazy idea I *want* Italy to fail. This couldn't be farther from the truth, what I have done in my call is factor-in what I consider to be a reasonable asseessment of the ability of the political class in Italy to pull together and help make a fundamental change in how the ageing problem is being handled.

I cite the Forbes and the Bloomberg articles since:

i) This blogs readers are mainly English speakers.

ii) The quality of the background analysis in the FT, Bloomberg and Forbes is frankly better than what I find in Italy (or Spain for that matter). This is an issue of personal judgement, and you are perfectly entitled to another point of view, and I am grateful for any links you send, as you will note I put your link in the main post.

But while the Italian link concentrated on the latest data, Forbes (apart from the German issue) also pointed this out:

"The company ended 17 successive quarterly losses by reporting higher profits in the final quarter of last year."

Fiat has finally ended a very bad patch, that is the context. 2006 is a global bumber year, 2007 in all probability won't be, so things won't continue to be as rosy as this, and I repeat at the end of the day, even in this best of best years, the Italian economy still won't achieve that 2% growth per annum that it so badly needs as *trend*. But you don't seem to want to talk about any of this.

"I really question your decision to concentrate your analysis on Italy."

Oh, this is easy. First there is no good blog source following the Italian economy, indeed English language analyses are often pretty sparse.

Secondly Italy is challenged to be in the vanguard of the ageing process, and this is my specialist area. So in many ways Italy is going to be like a laboratory, except, unfortunately, in this case I doubt there will be first mover advantage.

Paris ib said...

The problem I have with your analysis is that you start with the conclusion. You take the view that the 'aging population' will have negative consequences. Then you look around for a country with a low birth rate, you find Italy fits the bill, and you try to fit the data to your conclusion. This is a flawed way to proceed. Normally you would look at all the data and then draw conclusions.

In addition, demographers have a fairly poor track record. First they told us that we should worry about over-population (in the 1970s) and now they tell us the problem is the declinding birth rate and the aging population. There is a credibility issue here. Why should we take the slightest notice of you guys?

Where you see problems I see opportunities and, quite frankly, the sooner the non-western world starts to have a low birth rate the better.

That consideration aside, you don't seem to have any really grounding in the Italian economy, which is not without problems, but is quite unique. In my opinion a solid understanding of how Italy works is a prerequisite for making any recommendations or coming up with conclusions. At a minimum though I would ask you not to present every piece of data with a negative slant nor to exclude the positive data.

I'm not going to go into the FIAT issue in detail but if you had followed the evolution of FIAT you would understand that the passing of leadership to a new generation was not without problems. That passage has now taken place and the new leadership in place is extremely competent and the results speak for themselves. So, with regard to FIAT, an understanding of what went on with the company internally would be a prerequisite for passing judgement. One article, be it in Bloomberg or elsewhere, is not sufficient information. Once again your lack of background knowledge of the issues here shows up.

Paris ib said...

And no, if you don't speak the language you can't assume you understand the information on the basis that you speak other languages which may or may not have Latin roots. And being European is not sufficient either. Information does not pass from one person to another by osmosis.

Paola said...

I add another reason to support the importance and usefulness of the organization of this blog: I do not see many Italian Macroeconomists eager to open blogs online (Am I wrong?)and discuss issues about our economy in an open and constructive way. That is why I really thank Edward to give us the opportunity to exchange some ideas on these topics. And non-italian sources of information should be used as well to ensure reliability of information.

Paola said...

I add another reason in favor of this blog (and its whole organization): I do not see many Italian macroeconomist who would be willing to open a blog (Am I wrong?) and update it constantly to provide people with important issues to discuss. That is why I really thank Edward for giving us this opportunity...Also, variety of sources of information should be welcome, since they ensure reliability.

Paris ib said...

Paola, whatever, as long as the blog is factual and balanced. Right now that doesn't appear to be the case.

Paris ib said...

A link to some information on FIAT in English. This gives some background to what is happening at FIAT.

Hans said...

I'd rather accept bad facts than bad manners.

Paris ib said...

Why is that Hans?

Edward Hugh said...

"A link to some information on FIAT in English."

Thank you Paris. I updated the post and added the link. Oh, I also put a hat-tip to your blog).

"as long as the blog is factual and balanced. Right now that doesn't appear to be the case."

But isn't that just what you are here for, to put that straight :).

Actually, and again seriously, no tongue in cheek, I welcome your presence Paris, and am grateful for your input. Maybe I don't agree with it, but that isn't the point, you have a legitimate point of view, and it is one shared by millions of Italians. That is why I am more than happy to address the issues you raise.

Sometimes you have a rather direct way of saying things, but then I am pretty thick skinned, so at the end of the day that's OK too. The important part is the substantial macro issues that are being talked about here. Others may indeed enjoy listening.

"The problem I have with your analysis is that you start with the conclusion. You take the view that the 'aging population' will have negative consequences."

This is a substantial point, and I will addess it as time permits during the week in a principal post.

"That consideration aside, you don't seem to have any really grounding in the Italian economy,"

Maybe not, but you and Paula turn out to be excellent teachers, so I am learning fast.

"if you don't speak the language you can't assume you understand the information on the basis that you speak other languages"

I think you are being obtuse here, what I said was that these days my spoken Italian is pretty horrible, but that I can read Italian. Many Italians have the same experience with English so people know perfectly well what I mean.

As it happens, back in the 70s I used to speak Italian fairly well: I fell in love with, and ran off to Turin with, my Italian teacher (or was it she who fell in love with me). Actually, I should say with my second Italian teacher, since my first teacher in her turn also ran off, but this time to Australia, and with another woman.

But what is this, do you want to know all about my personal life or something? If I can spell scopare properly will that somehow make me a more valid analyst?

Actually I just realised why a central defender in football is sometimes called a 'sweeper': I am slow sometimes.

Anyway, shall we get back to economics, or would you like me to express my opinion on AC Milan's chances in the Champion's League this year. Of course, you wouldn't like to disagree with me if I said Juventus won't make it to the last 4, would you?

Paris ib said...

So, without getting blindsided by extraneous issues, you do speak Italian but you don't know much about the Italian economy. Fine. Great. Could I suggest that you don't try to fit all the data you come up against to your preconceived ideas about what a low birth rate means for economic activity? I think the jury is still out about what an aging population will actually mean. Although I know that the press would like us to believe it's this great big problem. I don't buy it. And you haven't come any closer to convincing me that I'm wrong on that issue. Italy's problem is really bad Government. The Italian response has been to withhold tax money. Right now that's the battle ground in Italy and I hope the Government loses.

P.S. Thank you for the hat tip.

Hans said...

" I'd rather accept bad facts than bad manners." Both ask for a correction: facts will become better, manners worse.
I hasten to add, that talking of bad manners is bad manners. Sorry.

Paris ib said...

Hans, the idea that "facts will become better" is an interesting one. But I'm not sure what it's based on except hope. And manners will become worse? How so? However, I'm not sure the argument is relevant here.

Paris ib said...

Oh and you don't have to be sorry, at least not from my point of view.

Edward Hugh said...

"Hans, the idea that "facts will become better" is an interesting one. But I'm not sure what it's based on except hope."

Well, are we talking about the facts about the Italian economy here, or about our reading of them. If it is the latter, isn't that what you are here for, to help us out:)

After all, as you suggest, I am economically challenged:

"you do speak Italian but you don't know much about the Italian economy."

Well, I am getting better by the day.

Incidentally, could you point me to one *fact* that I have wrong. That might help.

Hans said...

pop stuff: food for thought

Paris ib said...

Edward, I was commenting on Hans's comment and you know it. I don't believe I ever asked more from you than reporting the DATA. All I have asked is that you try and be scientific, if possible. With regards to Hans, he seemed to suggest that he could live with bad facts and not bad manners. That's his personal choice but I'm not sure that bad facts are appropriate for a factual blog.

Now, you seem very adroit in avoiding direct questions while bringing up unrelated issues. Still it would appear that you are uninformed about FIAT, unsure how the results were obtained, unsure of how FIAT fits into the Italian economy in general but still able to comment and place a negative spin on the data.

Please just report the data. The good numbers and the bad numbers. And don't try to spin everything to fit your preconceived ideas. Thanks.

Edward Hugh said...

"Edward, I was commenting on Hans's comment and you know it."

OK. So I fully accept that you are not complaining about any factual innacuracies in my coverage. I mean these might creep in, unintentionally, since we are all learning here.

Also, incidentally, please check the original wording of the Economist article on the severance issue in the 2007 budget. It was clear to me at the time that the person who wrote the article didn't really understand what was involved. I sort of did, since the situation is vaguely similar here in Spain. Now thanks to the input from Hans we all have a clearer picture, and my guess is we have one of the best informed online discussions of this that you can find in English. This is my objective with this blog.

And we will improve. Since 5 heads, and 5 points of view, are always better than one. That is a law of networking.

"Now, you seem very adroit in avoiding direct questions while bringing up unrelated issues. "

Well beauty here is in the eye of the beholder, but I'll take this as a compliment.

"Still it would appear that you are uninformed about FIAT"

I agree about this. I am not a company analyst, so any additional information you can provide here would be most welcome. What I am saying *needs analysing* is just how the productivity improvements (which are of course most welcome) were obtained - I see for example that the unions in Melfi are complaining about longer shifts for the same money, just like the German example, this is what I am calling deflation, since the real effect is a wage cut, which given the inflation you have been having is more or less inevitable.

But achieving productivity imporvements by wage deflation and by increased technical efficiency are not the same thing.

Also what kind of work (in value chain terms) is now being done in Italy, and what has now been outsourced. This is the key question, and was the one I was raising in the supply constraint article. We don't yet have answers to these questions.

"unsure of how FIAT fits into the Italian economy in general"

Yes, this is another concern. In general - in the post indutrial society/knowledge economy context - industry should be a reducing share of GDP, what we need to look at more are services (70% of the economy) and especially at high value services, and especially at why talented people like you, and Paola, and Marco's friends, are now working out of Italy. Why isn't the Italian economy producing enough high value service jobs? This is a much bigger issue than the recent imporved results at Fiat. And here the normal - Bloomberg type - analysts tend to be way behind the curve.

"And don't try to spin everything to fit your preconceived ideas."

Look, you and I have different readings of the situation, and this is right and proper. In due time we will see who is right. In the meantime please keep linking any facts that you feel I do not cover, as I will, as you must have noticed, put them up on the main blog, and with due recognition where recognition is due. We all benefit from more information and more points of view.

ps I'm glad you think I'm adroit :). So is Ronaldinho, as the Milan defenders - eat your heart out gattuso - recently learnt to their cost. Now if I can emulate 'il maestro'.........

On things Italian, on Tuesday I am off to hear Monica Pinto and some Spakka Napoli.