OREANDA-NEWS. September 29, 2008. Increasing fuel costs, CO2 emissions reductions, fluctuating exchange rates, shifts in consumer behaviour and a challenging economic climate are just some of the issues facing the automotive industry according to the latest PricewaterhouseCoopers report Global Automotive Perspectives 2008, reported the press-centre of PricewaterhouseCoopers.

Global Automotive Perspectives 2008 predicts that 2008/9 are set to include profound industrial shifts and challenges for the automotive industry, as it responds to a fast growing array of commercial and regulatory pressures.

Philippe Vincent, partner, PricewaterhouseCoopers, said:
“Great opportunities exist for the automakers and suppliers who will be able to deliver solutions to this structural industry transformation. A clear challenge lies in the ability of western automakers to adapt to the clear dichotomy existing between the established, mature markets and emerging markets.”

In 2007, sales of new cars skyrocketed in Russia, with a 66% increase from the previous year, almost surpassing Germany to become the largest car market in Europe. While most original equipment manufacturers (OEMs) are arriving in droves, they may experience difficulties in improving margins as the percentage of automotive components manufactured in Russia is still extremely low.

Additionally, Russia is still an emerging country with a GDP three times lower than the US, facing high inflation, and a rapidly declining competitive manufacturing advantage. Infrastructures as well as car maintenance and repair facilities are struggling to cope with rapidly increasing demand.

Despite the global downturn, we expect to see a significant number of deals happening. With the limited access to credit and recessionary risks, deal prices are lower, which make the industry more attractive to trade buyers. Financial buyers remain however, interested in the industry as it still offers opportunities.

The automotive industry is global in name only as a clear dichotomy exists between the established, mature and emerging markets leading to automakers pursuing diametrically opposed strategies.

In North America there has been a shift south as the Detroit 3 restructure and new capacity finds its way to southern US states and Mexico. In Europe, there has been a shift east with the new EU member states in central and Eastern Europe. From 2007 to 2015 emerging markets are expected to represent 18 times the estimated growth in light vehicle assembly as mature markets in the same period.

PricewaterhouseCoopers forecasts that 95% of light vehicle growth will originate from emerging markets, among these markets, the BRIC (Brazil, Russia, India and China) countries are eminent in the growth stakes, with more than 58% growth stemming from them from 2007 to 2015. China and India are forecast to lead whereas Russia and Brazil are expected to grow at a slower pace.

Philippe Vincent, partner, PricewaterhouseCoopers, said:
“The outlook for the global automotive market is challenging to say the least. Manufacturers and suppliers need to be preparing themselves to survive the intensity of competitive pressures.”

Western Europe has been considerably stable since the late 1990s, with sales of over 14 million. A lack of dynamic growth is a feature of a mostly mature market such as Western Europe, where replacement cycles and the prevailing economic situation drive demand. With ten new EU members since 2004, these countries were seen as sources of significant future sales growth – growth that is only now being realised. However, increasing disquiet about the general economic situation – stubbornly high unemployment figures in France, the increased cost of credit in the UK, and the rising cost of living in almost all markets suggests the picture for 2008 will not be so rosy.

In 2007, Japan was the largest manufacturing country for cars and trucks in the world. Its total assembly volumes and share of global assembly volumes declined significantly to 15%. The major challenge to the Japanese automakers will be to maintain Japan’s competitiveness as a major export hub. Two things appear inevitable; Japan will witness more local assembly pressure in overseas markets, and it will experience further domestic market decline.

Philippe Vincent, partner, PricewaterhouseCoopers said:
“The Japanese vehicle assembly faces a myriad of negative factors that will put pressure on automakers. Despite numerous new vehicle introductions in 2007, demand has continued to slide downward as negative economic outlook continues to erode consumer confidence. In addition, the financial health of Japanese automakers that heavily rely on American consumers has been substantially shaken by the precarious combination of a struggling US market and a stronger Yen.”

It appears 2008 is proving to be a year of profound industrial shifts and challenges for the automotive industry, as it responds to a fast growing array of commercial and regulatory pressures. As the industry undergoes structural changes, we may continue to observe a significant number of deals, despite the global credit crunch and macroeconomic turmoil.