Industry issues

Competitive pressures

Pressures in the highly competitive automotive manufacturing sector increase and over-capacity, particularly in vehicle assembly, mean that most suppliers face unrelenting price pressure. The rapid development of the low-cost labour economies in Eastern Europe, South East Asia, China and India is putting enormous pressures on labour intensive suppliers. The drive for lower costs and a technical edge are therefore vital for survival.

M&A and deals

Competitive pressures in the automotive manufacturing sector have made trade buyers selective, in turn leaving private equity groups as the only option for many corporate disposals. As industry pressures and cash flows become relatively predictable, private equity players have become more comfortable resulting in increased competition for automotive assets, pushing prices up. While the overall pace of industrial consolidation may have slowed, the presence of private equity has ensured the volume and valuation of transactions has remained buoyant.

Sustainability

Increasingly, environmental considerations — and public opinion — are driving manufacturers' decisions around the mix of materials used in manufacturing, the types of engine and the end of vehicle life (ELV). This impacts a manufacturer’s choice of suppliers and life-cycle decisions (production, use, and end of life) and in turn, their self-assessment any supply changes will ultimately have on the environment. Manufacturers and parts suppliers are required to share environmental information and communicate their progress to NGOs and other public interest groups.

Supply chain management and cost reduction

In the age of global trading, supply chains never stand still. This dynamic environment means that there are always opportunities for companies to improve but seldom the chance to optimise their business performance, due to the ever-changing situation. Therefore, supply chain architectures must be kept under constant review in order for then to be both logistically efficient and cost effective.

Emerging markets

Rapid economic developments in emerging markets, notably China and India, are providing significant opportunities to increase sales and reduce costs. Western manufacturers and retailers are involved in a "land grab" in key growth markets, involving securing the best suppliers in the face of competition from traditional direct competitors and from international suppliers who are seeking to tie up global pricing. Similarly, establishing presence and market share in the newly emerging markets is critical for the longer term success of these international companies.

Retail performance

UK automotive retailers are acclimatising well to the slowing in new car sales by increasing activity in the used car and after-sales areas to compensate. Running parallel, M&A activity has continued to increase, resulting in a number of recent high-profile large private and public deals. Share performance is varied, A small number of listed retail groups saw a 50%-plus increase in 2005 encouraging groups to consider selling, while others saw their share prices stagnate. However, a valuation depends on much wider variables and, as a result, it frequently takes considerable analysis, education and negotiation to reach an equitable agreement.

Regulation

The Block Exemption Regulations that came into effect on 1 October 2003 were meant to “put consumers in the driving seat” - by giving dealers greater independence from carmakers, promoting inter-brand competition, liberalising the aftermarket and encouraging the harmonisation of prices across the region. As a consequence of Block Exemption Reform, the total number of sales outlets in Western Europe has declined prompting questions of how to better manage the retail network, improve the networks' reporting and performance, and train field staff.