DETROIT, June 18, 2013 (GLOBE NEWSWIRE) -- The global automotive industry is now a part of a "three-speed world" – the United States and the BRIC nations of Brazil, Russia, India and China are in "overdrive"; Western Europe and Japan are stuck in "reverse"; and the balance of other markets are in "low gear." Against this backdrop, virtually all of the industry's growth in the next five years will be spawned from just a handful of global, modular, million-plus-unit "mega-platforms," which will bring both new opportunities and challenges for the industry. That's according to a new study of the global automotive industry by AlixPartners, the global business-advisory firm.
"Mega-Platforms": Opportunities for Some, Challenges for Others
The importance of automotive platforms is increasing, says AlixPartners' Global Automotive Industry Outlook, as is the nature of platforms themselves – and, according to AlixPartners, understanding this will be a key determinant of future winners and losers. Successful platforms of the future will be more and more modular, and more "mega" – with some able to accommodate as many as 10 vehicle families. In other words, these new types of platforms will be able to field everything from SUVs to sports cars, from entry-level to super-luxury, from conventional-powertrain to hybrid or electric, while also allowing for significant geographic adaptations for local requirements and parts-sourcing.
Vehicle production using such platforms is set to double over the next five years, says the study, and will account for more than 88% of industry growth in that time. Meanwhile, 46% of total global production volume, or 46 million units, will be produced on mega-platforms by 2017, says AlixPartners, vs. only 30% of global production in 2012.
"These are not your father's platforms," said John Hoffecker, co-president of AlixPartners in the Americas and head of the firm's Automotive Practice. "After years of striving to shed brands and to become ever more 'common,' well-executed mega-platforms have the potential to allow manufacturers to field more brands and models, in more geographies, and to do so cost effectively. However, though there is tremendous up-side, companies will face monumental challenges learning how to set up and control product-development and supply systems so complex they'll make today's already-sophisticated systems look like child's play. Meanwhile, quality will also be more important than ever, as just one single recall could end up affecting numerous brands and models."
According to the study, cost advantages from doubling production volumes off a given platform can range from 10-20% in non-recurring costs and 4-8% in recurring costs. This can translate into several hundred dollars in cost savings per vehicle, says the study – a very significant amount.
"For automakers, the key to success will be to design new platforms to be super-flexible while still maintaining cost advances, and while, most importantly, focusing on execution like never before," continued Hoffecker. "Meanwhile, for suppliers, the challenge will be aligning with the 'right' platforms to begin with – because in this new world if you don't put your eggs in the right basket, you may wind up with a whole lot of broken eggs – while looking for ways to maintain pricing power in the face of automakers likely asking for volume discounts."
The U.S. Story: Mixed Signals
In the United States, sales continue to rise from the depths seen during the worst of the financial crisis in 2008-2009. Light-vehicle sales, says the study, are expected to rise to 15.4 million and 15.8 million in 2013 and 2014, respectively.
According to AlixPartners, there are a number of cyclical factors bolstering the outlook for U.S. auto sales, including a strengthening job picture, increased homebuilding (always a boon for the truck-makers) and a better overall credit picture.
It will be worthwhile, however, to watch the overall effect on borrowing and the economy when and if the U.S. Federal Reserve discontinues its "quantitative easing" program, the study cautions. As was the case when the Internet and real estate bubbles burst, the bursting of the "QE bubble" could have a big negative impact on the overall net worth of U.S. consumers, the report says. Furthermore, such a move could also cause interest rates to move higher and make it harder for potential automotive buyers to afford a loan.
Western Europe: Is the Downturn Structural?
In Western Europe, car sales for 2013 are expected to remain in "reverse" for the sixth straight year, according to the study. Going forward, the study says, a flat market outlook has become a realistic scenario, as changes in demand appear to be structural rather than cyclical.
"Flat is the new up in Western Europe," said Hoffecker. "Our models show Western European sales reaching a bottom of 12 million units in 2014, and largely remaining there for the foreseeable future – far from the historical peak of 2007, when 16.8 million units were sold. On the other side of the coin, however, Central and Eastern Europe will continue to grow, adding about 2 million vehicles in the next five years."
European Under-Utilization up to 58%
The number of under-utilized assembly plants in Europe has increased at an alarming pace, notes the study. Approximately 75-80% plant utilization is required to break even. Last year's AlixPartners study noted that an already-discomforting 40% of the top 100 plants across Europe were operating below 75% capacity utilization. Today, that number has increased to 58% of the top 100 plants. The situation is most critical in Italy, where the average plant utilization has fallen to 46%; France at 62%; and Spain at 67%. Russia, which has an average utilization of 60%, represents a special case, notes the study, as several older plants probably need to be taken out of production to make way for new plants needed to prepare for an expected total market growth of 28% through 2018 (compared with 2012).
Auto Production Continues to Move East
China, despite some cooling of late, is set to continue to be the global automotive pacesetter for the foreseeable future, according to the study. The study projects that China's market will grow to 29 million in 2018, a staggering increase of 10 million units versus 2012 and accounting for almost 50% of total industry growth globally. India should be following suit, says AlixPartners, with 2.6 million vehicles estimated to be sold in 2018 – a 79% increase over last year's sales figures.
Meanwhile, auto production in China, which was 1.85 million units in 2000 (just one tenth of today's output), is expected to grow to 28.8 million by 2018, says the study. Two other production winners in the emerging markets are expected to be India, with 3.7 million vehicles produced (now ranked sixth among global automotive producers), and Thailand, with 2.8 million vehicles produced (ranked ninth). Both countries were well below one million vehicles in 2000. Brazil has doubled its annual car production since 2000, to 3.2 million units, thus becoming the world's seventh largest car producer and the biggest in South America (even ahead of Mexico, which is ranked eighth).
Global Industry Forecast
According to the study, the global auto industry overall will likely experience moderate growth of 3% in 2013, before entering into a period of robust growth of more than 4% per year from 2014 through 2018. Compared with 2012, the global market is set to grow by 28%, or 23 million units, through 2018. And, the study forecasts global light-vehicle sales rising to 102 million units in 2018, up from last year's 80 million units.
M &A Outlook: Mega-Platform Could be a "Game-Changer"
Even though many automotive companies have fattened their coffers of late, M &A deal volume has remained low as companies have been hesitant to part with their hard-won cash, says the study, with volume down 17% last year from already-low levels. One exception to that trend has been smaller deals involving tier-2 and tier-3 suppliers, often involving private equity.
However, just as the advent of mega-platforms could be a game-changer for the way vehicles are designed, engineered and built, so too might they be a game-changer for automotive M &A and the entire structure of the industry, says the study.
"In order to meet OEMs' new demands, suppliers are going to need to be truly global and unified in how they actually operate, not just 'global in name only' – and that could mean a lot more M &A coming up in the future," said Christian Cook, a director in AlixPartners' Automotive Practice. "More and more, OEMs will be demanding things like just one bill of materials globally and true global account management, and you have to be unified to deliver on those kinds of things."
AlixPartners is a global business advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial advisory services and information management services. Founded in 1981, the firm has offices around the world, and can be found on the Web at www.alixpartners.com.
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