ExpertEye European Automotive Report Q2 2016

Outlook . Economic Climate The weak euro zone bank profitability is reducing banks’ capacity to build capital buffers through retained earnings which in turn is increasing their difficulty in dealing with Non-Performing Loans “NPLs”. For many banking systems, elevated NPLs comprise a major structural weakness with many euro zone banks having €900 billion in NPLs as recently as a year ago. Investor concerns have already been raised following the bail-in of the subordinated debt of four small Italian banks late last year. There are also accusations of inconsistent treatment and an erosion of trust due to the treatment of select senior debt holders of Novo Banco (Portugal). Without significant reform, such as margin repricing of greater than 50 basis points, a number of banks will struggle to pass Possible new banking crisis in Southern Europe New “IFRS 16” unlikely to have significant impact No signs of moves away from vehicle leasing the capital adequacy tests which should come to light once the results of the 29th July stress tests are published. The new International Financial Reporting Standards for Leases “IFRS 16” sees leased assets now coming onto the lessee’s balance sheet which will see an increase in gearing ratios, earnings before interest, taxation and depreciation “EBITDA” and cash flow. However even quite large vehicle fleets are not expected to have a significant impact on most companies’ balance sheets with companies using leased properties most affected. A recent study by Lex, the UK’s largest vehicle leasing company, found that most companies stating that they see little to influence a change in strategy away from vehicle leasing. With lessor accounting remaining almost unchanged from IAS 17 this will mean leased assets effectively appearing on two sets of balance sheets. New Vehicle Sales New car sales should continue to rise by around 8.5% across the EU28 and EFTA3 this year with a further 5.2% rise expected in 2017 making total sales just under 16.2 million passenger cars. A smaller rise of just under 2% in 2018 should see total European car sales top 16.5 million European Automotive Report - 2016 Quarter 2 27

ExpertEye European Automotive Report Q2 2016 | Page 28