Daniel Anghel, PwC Romania: On the long term, the automotive industry will need to find a way to balance accelerating innovation and financial survival
The Romanian automotive industry is one of the most important engines of the local economy and one of the country’s major employers. The carmakers Dacia and Ford are the pillars of an ecosystem of over 400 manufacturers of automotive components, who export their products all over the world, according to Daniel Anghel, Tax and Legal Services Leader at PwC Romania.
“The sector attracted important investments in the last years, from the two carmakers and especially from the automotive components manufacturers. Unfortunately, Romania missed the opportunity to attract important investment in the field, the deficient transport infrastructure being one of the main reasons,” Daniel Anghel said in an interview for Automotive Today.
How do you see the Romania automotive industry’s development in recent years?
The automotive industry is one of the most important economic engines of Romania and one of the country’s major employers, with more than 230,000 employees last year. The carmakers Dacia and Ford more than tripled their capacity in the last ten years, to 470,000 cars assembled in 2018. Also, it has created an ecosystem of over 400 manufacturers of automotive components, who export their products all over the world. All of them generate 14 percent of Romania’s GDP and 26 percent of exports. In 2018 the industry increased by 20 percent compared to 2017, the highest in the last seven years.
Dacia is the landmark of the local industry, which reinvented itself with the launch of models like Duster and Sandero. This helped the carmaker to achieve a four percent market share in Europe and achieve 13th place in the top best-selling European cars.
The sector attracted important investments in the last several years, not only from the two carmakers but especially from the automotive components manufacturers. Unfortunately, Romania missed the opportunity to attract important investment in the field, the deficient transport infrastructure being one of the main reasons.
What are the Romanian automotive industry’s development prospects in the medium and long term?
Car sales will temper its growth rate on the medium term, the average annual rate being estimated at 5.7 percent by 2022. We have to see how the low perspectives on Germany’s economy in general and the auto industry in particular could affect the Romanian automotive component sector.
Dacia and Ford announced their intention to continue investing in their production facilities at Mioveni and Craiova.
On the long term, the main challenge for the industry will be to find a way to balance accelerating innovation and financial survival. Also, the workforce shortage and the need to cut costs will put pressure on accelerating process automation and robotization as machines are increasingly relied upon to speed up assembly. And while automakers and suppliers manage the downsizing and automating of their factories, they will have to turn their attention to recruiting and training workforces unlike any they have had before. This new group of employees will be much more digitally oriented and comfortable with new technologies than prior generations of autoworkers. According to PwC Automotive Trends 2019, the combination of these factors will likely slash the global auto industry workforce at least in half by 2030 and Romania will follow this trend.
What impact will Brexit have on Romanian car manufacturers and suppliers?
As the UK’s exit negotiations come to a close in 2019 and the conditions under which the UK will leave the EU will become clearer, automakers are assumed to be entering a new decision-making phase. For the time being investments are broadly put on hold.
Depending on the outcome of both the Brexit deal and the UKs’ future trading relationship with the EU, there are three different investment options available, namely: new investments, keeping the status quo, or disinvestment. Those decisions are important and may have a significant impact on the automotive sector in the UK as well as on jobs and the economy at large. For example, UK is the biggest European market for Ford and the company announced that is spending millions of Euro preparing for a Brexit without a trade deal. The company hasn’t decided yet on its longer-term plans for Britain.
As for the potential impact of Brexit on the Romanian market, maybe we should be cautious, but I don’t see a shock wave hitting us. Quite the contrary, there are growth forecasts from the industry.
On the other hand, the new commercial relationship with the UK as a non-EU state assumes that the principle of free movement of goods and services will no longer be applied in trade relations. What does this mean for Romanian companies? Delays, additional costs, cash flow pressure and the need to update IT management systems.
So, the Romanian companies will have to adjust their supply chain and modify their IT systems, but also be aware of new fiscal and customs implications.
What are the main competitive advantages of the Romanian automotive industry?
The competitive advantages I can think now are the presence of the two carmakers and the well-skilled workforce, with still-reasonable labour costs. Unfortunately, this edge will wear out through the years, as salaries go up, which as a matter of fact is only natural. Obviously much more needs to be done, especially regarding the completion of the major infrastructure projects, so we can attract more investments in the sector.
What are customers’ main requirements when considering new digital technologies?
The automotive industry is now driven by technological advancement and consumer behaviour, such as internet or smartphone connectivity. The car’s digital instrument cluster, providing information on speed, mileage, navigation, or weather, is already a standard feature.
Now, customers are thinking about synchronising tools and inter-connected data, so that smart vehicles can interact not only with each other, but also with the environment, to produce an efficient and reliable transport system.
What role will mobility services play in the future car market?
The challenge of congestion is a perennial issue for cities all around the world, and one that is rapidly worsening. The density of cars in Romania is experiencing a significant increase – the number of vehicles compared to thousands of inhabitants. For example, in Bucharest this is 22 percent higher than the EU average, and again the road infrastructure has failed to keep up with this growth of the car population. This makes Bucharest one of the five most congested cities in the world in terms of traffic.
In a world where an increasingly accelerated change is generated mainly by the evolution of digital technology, the future of urban mobility is linked to the development of digital car-sharing platforms and e-hailing. Romania should take advantage of digital technology and encourage the development of this area, while mitigating the problems related to pollution and traffic congestion. The Bucharest municipality had an idea to implement a programme to encourage mobility and congestion-relief for traffic, but nothing concrete has happened so far.
How do you see the possibility of banning diesel engines in cities, as others countries have announced?
Many of the initiatives you mention have not turned into specific legislative measures, except for some cases, but we can’t ignore the possibility that they may materialise in the coming years. Implementation of this change, however, hinges on political willpower and a much needed – currently still deficient – infrastructure, and on the promotion of green car use, by means of financial incentives or easier access to financing.
How do you think the authorities should limit the import of second-hand cars?
Romania needs an efficient car taxation strategy to stimulate the renewal of the car population, after the elimination of the stamp duty which accelerated the increase of imports.
We consider that a new system of establishing local taxes on motor vehicles, calculated according to the environmental footprint of the vehicles, would be welcome. Such a system should take into account the Euro norm to which the respective vehicle fits and the CO2 consumption. This approach also aligns with the EC objective that recommends the implementation of a vehicle taxation system that takes into account relevant environmental protection criteria, such as CO2 emissions, the age of vehicles and not just technological criteria.
How do you think the Romanian market for electric and hybrid vehicles will develop?
There is a growth trend, it’s obvious. According to the last study by APIA, Romanians bought 3,541 green cars in the first seven months of the year, 60 percent more than a year ago. And this trend will continue, stimulated also by the state bonus of 10,000 Euro for the purchase of each electric vehicle. Buyers don’t have to provide a used car in return for the bonus, despite the implied “junk car” name of the programme (Rabla Plus).
The Government has recently announced subsidies of up to 190,000 RON per unit and the setup of electric car charging stations in county capitals and Bucharest municipalities. The funds would come from the sale of GHG emission allowances allocated to Romania by the EU and would be managed by the Environmental Fund Administration.
What legislative changes in the last year have had the biggest impact on the automotive industry?
Regulating ridesharing is the latest legislative news. The government adopted an GEO aimed at “defining: alternative passenger transport activities, how they are conducted, all the players involved, how the digital platforms and all the alternative transport operators are regulated, the taxation method for incomes derived by drivers and operators, as well as the obligations to be introduced by platforms or drivers”.
Our studies show that the adoption of a legislative framework open to these platforms, as most European states now apply, would bring additional benefits to the economy worth over 1.1 billion RON in the period 2020-2023.
(From the print edition)