OREANDA-NEWS. October 10, 2007. Global light vehicle assembly will grow by over 19%, from 65,2 million units in 2006 to 77,6 million units by 2014, reported the press-centre of PricewaterhouseCoopers.

While the majority of this growth will be likely to come from China, India and other emerging markets, mature markets are still expected to contribute nearly a third of that growth.

This is just one of the findings of the ninth annual ‘Global Automotive Financial Review’ by PricewaterhouseCoopers which includes a summary of financial data, trends and practices reported by leading global vehicle manufacturers and suppliers. These comprise 16 global vehicle manufacturers and 22 global suppliers, 18 of which generated more than $10 billion each in revenue during 2006. The review of the global automotive industry also looks at the developments in the mature, yet dynamic, markets in Japan, North America and Western Europe.

The mature regions are expected to be among the best performers in reducing excess capacity over the forecast period. The European Union is expected to improve manufacturing utilisation by 7% by 2014, while North America improves by 5%. The European Union will be likely to lead growth efforts, adding approximately 2,7 million light vehicles to its assembly base over the forecast window. Even North America, with all its structural difficulties, will grow by close to a million units over that time. In Japan, the most mature market in the Asia Pacific region, light vehicle assembly is expected to remain relatively stable over the forecast window, experiencing a decline of 250,000 units or 2%.

Philippe Vincent, partner, PricewaterhouseCoopers said:
“The outlook for the global automotive market appears to be very positive with continued production expansion. But this is actually increasing the challenges for the industry with competition becoming stronger than ever as new rivals, particularly from Asia, appear on the landscape as fast as the market is growing. Manufacturers and suppliers need to be preparing themselves to deal with this new intensity of competitive pressures.”

Growth in the European Union is rooted in the resurgence of traditional brands and a rebound of assembly in some established vehicle manufacturing countries. Germany is likely to see an increase of more than 900,000 units by 2014. This will eclipse the growth of any other EU country. Even second ranked Slovakia will add only 500,000 units over the same period.

Growth in light vehicle assembly looks set to rise from around 2,4 million units to 20,3 million units in 2014. This will be due in part to increased demand from the new EU members which could contribute a further 1,5 million units of new vehicle demand. Export growth and European consumers’ increasing appetite for premium brands will also both play a part.

In contrast the anticipated growth in North America can be attributed to transplant manufacturers (European and Asian manufacturers), which continue to add assembly operations as they claim a steadily increasing share of the market. In 2006, transplant manufacturers claimed 34% of the light vehicle manufacturing base but this is expected to expand to 43% by 2014.

Going forward Mexico remains the only significant demand growth market in North America. Automotive related investment over the last two years exceeded US$3 billion and Mexico exported more than 1,5 million vehicles in 2006, nearly 500,000 units more than its domestic sales. This export trend looks set to continue.

Japan has been an automobile export powerhouse for decades and this is becoming more apparent. It shipped nearly six million light vehicles in 2006, roughly 50% of its total assembly volume. Many Japanese automakers anticipate increasing assembly volumes of diesel engine vehicles. Although not viewed favourably by consumers across the globe, other than Europe, the latest clean diesel engine technology could change consumer perception and many diesel powered vehicles are expected to be sold outside Japan. So like Europe and Mexico, export volumes will be the key influencer of assembly volumes in Japan.

The automotive supply industry is going through major changes. Private equity firms and hedge funds have discovered automotive suppliers as takeover targets but with no legacy or roots in the sector their dealings cam be less predictable than the traditional banking relationships. Secondly, the trend amongst European and US OEMs to move east has shifted them beyond their traditional supplier base and towards very different regional, legal and risk management implications.

Philippe Vincent, partner, PricewaterhouseCoopers said:
“Large parts of the automotive supply industry are still in deep trouble. With nearly all major raw material prices soaring and continued demands from OEMs for price reductions, many suppliers are running out of cost-cutting options fast”

The review discusses the ‘Japanese Model’ as a possible solution for the supply industry. With a much higher degree of cooperation between the supplier and OEM it leads to partnership like relationships between customers and suppliers. But with the current high competition between OEMS in all market segments and the erosion of margins, a change in the relationship between suppliers and customers seems unlikely in the near future.

‘Global Automotive Financial Review’ also provides insight into the priorities of the leaders of automotive companies in a segment with quotations from the chairmen’s letters to shareholders on major recurring themes evident across the annual reports. These include technology and innovation, ethics and corporate governance, collaboration, key strategies for success, the environment and global opportunities.