2008
KPMG International: The situation in the global automotive industry is grim, and the outlook is even grimmer
KPMG International: The situation in the global automotive industry is grim, and the outlook is even grimmer
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The automotive industry today is marked by deep and widespread uncertainty. As global stock markets plunge and consumer confidence dips to historic lows, light vehicle sales in almost all regions continue to slide, says the recently published white paper A rough road: The effects of today´s financial crisis on the global automotive industry published by KPMG International. |
For the mature markets, especially in the U.S. and Western Europe, the decline in sales has been particularly sharp. Major factors for this decline include a lack of cash and financing sources, placing severe pressure on suppliers and dealers in particular. This situation, in turn, increases the risk to Original Equipment Manufacturers (OEMs) that suppliers may fail and production may have to stop.
"One of the main reasons for the current downturn is an industry-wide credit crunch. Loan defaults are increasing, and many banks and finance companies, especially in the U.S. and Europe, are becoming much more rigorous in approving car loans. With declining sales and a virtually frozen credit market, it should come as no surprise that main carmakers have announced a string of production or staff cuts in Europe and the U.S.", says Andrew Sutherland, partner in charge of the Automotive sector in KPMG Czech Republic.
With credit increasingly more expensive and difficult to get, these financial tensions will likely continue to affect the entire industry – from consumers of the end product to dealers, OEMs and suppliers. In September U.S. sales for most carmakers have declined by double digits. General Motors sales are down 16 per cent, Toyota 32 per cent and Ford 34 per cent. In Europe, September car sales decreased by 8.2 percent – the steepest declines were noted in the U.K. and Spain. Global automotive sales, even in traditionally strong markets such as China, have seen slowing growth rates or even declines.
Czech Republic
"In terms of the Czech Republic, it is clear that consumers are losing confidence, domestic sales are still falling and cash is getting tighter. Suppliers are being squeezed by their customers as future orders are uncertain and the situation is changing by the day. Unfortunately there is little good news for the sector at present," says Andrew Sutherland.
BRIC countries
Over the past decade, Brazil, Russia, India and China (the BRIC countries) have been recognized as strong markets for production and sales. Even here, however, there are signs of stress that would not have been expected a year ago.
Brazil remains in relatively good shape despite the global slowdown. The country has healthy foreign exchange reserves and its banks avoided the U.S. subprime lending market.
The Russian car market, which was fast becoming the largest in Europe, has not stagnated yet. However, the main drivers of its success have been buried under the weight of the global financial crisis.
The Indian auto sector faces roadblocks in the form of high interest rates, worsening credit availability and slowing industrial growth. Financiers are already expecting a 15 to 20 percent dip in the total amount of auto loans this season.
As for China, in October 2008, China Association of Automobile Manufacturers announced that China’s passenger vehicle sales declined for the second consecutive month in September as compared to the previous year. The decline in September followed a seven percent drop in August, the first monthly drop since early 2005, which suggested a decline in the market after years of double-digit sales growth.
Suppliers and Dealers
The figure of auto suppliers that are in some sort of financial trouble has increased with the severe tightening of credit. Since approximately 80 per cent of an automobile is manufactured by suppliers, the financial pressures on suppliers will affect the entire supply chain.
Many suppliers might have to divest some of their assets to maintain cash flow. Some suppliers might be acquired by OEMs that want to invest in key parts of their supply chains to safeguard ongoing production. The overall situation for suppliers will likely not improve in the immediate future, especially in the face of dramatically reduced demand.
Dealers face equally serious issues. Shares for Inchcape, the international car dealership, plummeted when the company outlined plans for job cuts and warned that 2009 profits would be significantly lower than expectations.
"One of the main reasons for the current downturn is an industry-wide credit crunch. Loan defaults are increasing, and many banks and finance companies, especially in the U.S. and Europe, are becoming much more rigorous in approving car loans. With declining sales and a virtually frozen credit market, it should come as no surprise that main carmakers have announced a string of production or staff cuts in Europe and the U.S.", says Andrew Sutherland, partner in charge of the Automotive sector in KPMG Czech Republic.
With credit increasingly more expensive and difficult to get, these financial tensions will likely continue to affect the entire industry – from consumers of the end product to dealers, OEMs and suppliers. In September U.S. sales for most carmakers have declined by double digits. General Motors sales are down 16 per cent, Toyota 32 per cent and Ford 34 per cent. In Europe, September car sales decreased by 8.2 percent – the steepest declines were noted in the U.K. and Spain. Global automotive sales, even in traditionally strong markets such as China, have seen slowing growth rates or even declines.
Czech Republic
"In terms of the Czech Republic, it is clear that consumers are losing confidence, domestic sales are still falling and cash is getting tighter. Suppliers are being squeezed by their customers as future orders are uncertain and the situation is changing by the day. Unfortunately there is little good news for the sector at present," says Andrew Sutherland.
BRIC countries
Over the past decade, Brazil, Russia, India and China (the BRIC countries) have been recognized as strong markets for production and sales. Even here, however, there are signs of stress that would not have been expected a year ago.
Brazil remains in relatively good shape despite the global slowdown. The country has healthy foreign exchange reserves and its banks avoided the U.S. subprime lending market.
The Russian car market, which was fast becoming the largest in Europe, has not stagnated yet. However, the main drivers of its success have been buried under the weight of the global financial crisis.
The Indian auto sector faces roadblocks in the form of high interest rates, worsening credit availability and slowing industrial growth. Financiers are already expecting a 15 to 20 percent dip in the total amount of auto loans this season.
As for China, in October 2008, China Association of Automobile Manufacturers announced that China’s passenger vehicle sales declined for the second consecutive month in September as compared to the previous year. The decline in September followed a seven percent drop in August, the first monthly drop since early 2005, which suggested a decline in the market after years of double-digit sales growth.
Suppliers and Dealers
The figure of auto suppliers that are in some sort of financial trouble has increased with the severe tightening of credit. Since approximately 80 per cent of an automobile is manufactured by suppliers, the financial pressures on suppliers will affect the entire supply chain.
Many suppliers might have to divest some of their assets to maintain cash flow. Some suppliers might be acquired by OEMs that want to invest in key parts of their supply chains to safeguard ongoing production. The overall situation for suppliers will likely not improve in the immediate future, especially in the face of dramatically reduced demand.
Dealers face equally serious issues. Shares for Inchcape, the international car dealership, plummeted when the company outlined plans for job cuts and warned that 2009 profits would be significantly lower than expectations.
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A rough road: The effects of today´s financial crisis on the global automotive industry is available at: Download |
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