About the Industry

 Among all car manufacturers in the world, Spain is the 2nd largest manufacturer in
Europe and 8th largest in the world.
 Their annual CAGR for the automobile industry stands at 5.9% annually and currently
accounts for 10% of the country’s GDP. (Source: tradingeconomics.com)
 Seat was a local Spanish brand that has been acquired by Volkswagen. As a result,
the entire automobile industry in Spain does not have a strong local player. Leading
brands present in this country along with their market shares are –
Company Market share
Renault 8.18%
Seat 7.61%
Volkswagen 7.22%
Peugeot 7.07%
Opel 7.00%
Citroën 5.51%
Ford 5.50%
Toyota 5.34%
Nissan 5.03%
Dacia 3.74%

Source: Spanish Association of Vehicle Manufacturers

 9 brands that manufacture automobiles in Spain have set up 17 manufacturing plants

amongst them.
 It is forward looking in terms of the automobile industry globally, with Ford launching
their electric vehicles line of cars in Spain. Moreover, as per recent data component
manufacturers have invested $1.7 billion in R&D to develop new components for
future models (Source: Spanish Association of Car and Truck Manufacturers)
 The Spanish Association of Car and Truck Manufacturers forecasts a growth of 8%
for the coming year, due to the increase in demand for electric vehicles worldwide
being met by the production of electric vehicles in Spain. With a YoY GDP increase
of 3%, this automobile industry is beating the GDP growth rate, making it an
attractive investment opportunity for a foreign manufacturer.

Impact of Country Risk

 Looking at how the exports of the country is distributed below, we can infer that the
automobile industry is heavily linked to fluctuations in the exchange rate for Spain.
Moreover, 85% of the vehicles manufactured in Spain were distributed to over 100
countries in 2016

Spanish Exports by segment

1.60%
Raw Materials
1.30% 2.60% 7.10% Durable Goods
Energy
20.30%
10.10%
Consumption Goods
10.20%
16.50% Semi-Manufactured
14.00% Chemical Products
16.30%
Food Beverages and Tobacco
Vehicles
Capital Goods
Other Goods
  Due to the export-heavy automobile industry of Spain, the recent relaxed financing
conditions and growth in credit within Spain will not have a major impact on the
automobile industry since consumers are located outside Spain. Moreover, with a
weakening Euro, it would also be prudent for companies to borrow in USD while
entering the Euro markets right now.

Similar Companies Outlook towards Spain -

In order to understand our position in Spain, we undertook a comparable Ford in order to

understand how certain factors have impacted the production of Ford in their Valencia plant.
Ford Government Business Labour Trade
Year Production Integrity Freedom Freedom Freedom
2009 75,403 67 76.8 48.3 85.8
2010 66,318 65 75.8 47.3 87.5
2011 65,028 61 77.2 53 87.6
2012 51,095 61 81.3 51.8 87.1
2013 47,554 62 80.3 54.3 86.8
2014 60,215 62.6 77.3 52.2 87.8
2015 70,647 59 77.5 52.6 88
2016 65,985 60 76 51.7 88
2017 68,279 57.2 66.9 55.3 87

Since the biggest risk identified were political risks, the factors used to understand its impact
on Ford’s production all revolve around political risks. Running a multiple regression analysis,
we observe that only 17% (adjusted R-square) of the production numbers can be explained
by these factors. None of the above factors are significant. Moreover, in order to remove
collinearity, we checked for all factors individually and none were significant. This, along with
Ford’s recent announcement that they would invest over $880 million at their Valencia plant,
indicates that the political uncertainty, albeit important, should not be a major hindrance in the
long-term decision of our company.

Analysis of Input Costs

Oil Prices

Aluminium Prices