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The motor industry has yet to deal with massive manufacturing overcapacity, despite a year of business failures and closures.
KPMG’s 2010 survey of the global automotive industry is predicting a raft of restructuring in the sector has yet to come.
Three-quarters of senior auto executives predict merger and acquisition activity (‘M&A’) to increase for vehicle manufacturers in the next five years, which is expected to be driven heavily by corporate debt and insolvency casualties.
The global survey of 200 leading executives also cited difficulties over high overcapacity especially in Europe and the US and the need to focus on investing in innovation and new technologies to produce the next generation of energy efficient vehicles.
Mike Steventon, Head of Automotive for KPMG in the UK, said:
“Growth and investment are back on the agenda – but that will come at the price of continued restructuring of an industry that is still burdened by huge overcapacity. The change has only just begun.
“Companies also face the challenge of financing the cycle of innovation – while consumers feel that they are poorer than before, and less inclined to spend. That means that companies are likely to have to compete on technology and on cost. That is a tall order.”
Key findings:
• 47 percent of senior executives predict strong growth and investment in Eastern Europe – while growth expectations for Western Europe are low
• Executives still see profitability as a significant issue – with 33 percent expecting a decline, and 40 percent expecting profits to be stable
• Substantial majorities of those surveyed think that M&A will increase for tier one suppliers (just over 70 percent), tier two suppliers (56 percent) and dealers (52 percent)
• Faster rationalisation over the last year means that M&A among dealer networks is likely to fall back, according to the survey
• Excluding the BRIC countries of Brazil, Russia, India and China, executives said consumer demand for autos will grow the fastest over the next five years in South East Asia (37 percent) and Eastern Europe (30 percent)
Marc Summers, UK director in automotive at KPMG, said:
“Auto executives expect that M&A activity will increase across manufacturers and suppliers mainly driven by the companies’ determination to succeed through access to new technologies and products and delivering product synergies. This will lead to more alliances, joint ventures and acquisitions, particularly by the strong players – this will allow them to share the high cost and burden on investment in innovation.”