Emerging markets are key players in the merger and acquisition trend.
Things are starting to look better in the automotive sector as continued growth in emerging markets and widespread inventory replenishment are offsetting slower automotive markets in North America and Europe, according to a recent report.
PricewaterhouseCoopers’ latest Autofacts forecast estimates sales in emerging BRIC markets are pushing 2010 towards a record year for global light vehicle assembly, all but eclipsing the 2007 pre-recession high point.
“In light of a muted sales recovery in the US and the effects of government incentive withdrawals being felt across Europe and Japan, it should not be surprising that sales in the established markets through 2010 are in decline or stable at best. Indeed, given such uncertain circumstances for the world’s major automotive markets, a record level of vehicle assembly in 2010 would have been dismissed a year ago,” said PwC auto analyst Calum MacRae, who noted developing markets will continue to be a growth driver for the industry well into 2011.
PwC forecasts Japan, Western Europe and the US boosted light vehicle sales by 5.6 per cent in the first eight months of 2010, an improvement equivalent to almost 1.1 million units. However, the BRIC countries led growth, boosting sales by 33 per cent, equivalent to an increase of 3.5 million units.
In contrast to the level of output recorded at the industry’s last peak in 2007, when BRIC countries accounted for 18.7 per cent of global output, these key growth markets will likely account for more than 30 per cent of 2010’s global assembly forecast of 69.9 million units.
This surge from the east is being felt in the global auto supply market as well.
PRTM, a management-consulting firm based in Detroit, says auto supplier bankruptcies continue to slow while acquisitions are approaching record levels.
Its report, Bankruptcy and Consolidation in the Global Automotive Supply Industry 2010, examined 560 suppliers globally with aggregate revenues of US$2.14 trillion in 2009.
The study says suppliers in China and India are becoming strong enough to actively participate in the mergers and acquisitions activity traditionally dominated by US and western European firms and that this competition for under-valued assets will force the automotive stalwarts to adapt to a global market.
“Over the next 10 years, the rapid rise of China’s auto sectors will force today’s industry leaders to rethink their definitions of ‘global’ and to understand the importance of localization as part of the new global view,” says Dietmar Ostermann, PRTM partner.
Ostermann says the winning suppliers will support global OEM platforms and have an unprecedented opportunity to optimize and geographically expand their customer base.
Increasing liquidity in the sector, combined with an up tick of new private equity players, means undervalued assets and still-fragmented suppliers will continue to be “snapped up.”
PRTM’s study predicts Visteon, TRW, and Delphi in the U.S.; Continental and Faurecia in Europe; and Calsonic in Japan are likely to divest certain businesses or change owners.
Powertrain, chassis, and exterior systems face the greatest consolidation pressures of the six main vehicle systems.