The rapidly changing automotive sector is failing to unlock as much as €215bn in much needed funds from its balance sheets due to inefficient working capital management (WCM) according to a new report from PwC - Cash for Change: working capital trends in the automotive sector.
This is despite facing an unprecedented and comprehensive need for reorganisation in response to the fourth industrial revolution and the rapid evolution electrified, autonomous, shared and connected vehicles.
While across the UK and Europe around €92bn is waiting to be unleashed, the report authors have recognised that during 2017, key UK automotive sector companies have been generally outperforming their European counterparts, mainly driven by lower stock inventory levels and higher days payables outstanding levels.
Cara Haffey, UK automotive and industrial manufacturing leader at PwC said:
“Last year, UK vehicle engine production reached record levels, up almost 7% on the previous 12 months, and car exports were at a historic high with 1.33m - or c.80% of those produced - leaving our shores for other markets.
“We’ve also seen an increasing focus on technology, with the UK Government’s industrial strategy, new safety features and connectivity gadgets being developed, autonomous vehicle trials underway and sales of electric vehicles growing by almost 10% on the previous year. Responding to this rapid gear shift in activity takes not just strategic acumen but an agile cash flow.
“If we are to be at the forefront of this technological race, it’s vital that UK automotive companies stop regarding their working capital simply as an overdraft and, instead, consider it as their first port of call for funding investment in their business.
“This approach could be especially useful at a time when auto companies are looking to invest in fleet electrification and developments around connected mobility. For many automotive organisations, the cash to fund these investments is already sitting in their business as working capital. It’s time to release it.”
According to the report, significant gaps are also emerging between the OEM and Non-OEM sector. This has partly been driven by different business models and customer base - but there are also fundamental differences in their approach to working capital and management of cash.
The report analysis also shows that:
According to Rob Kortman, working capital management partner, PwC UK, success comes to those businesses with an embedded cash culture and clear key performance indicators. He said:
“During our analysis, we found that only a quarter (24%) of finance time is spent on insight-generating activities - time that could be spent helping business functions better understand the cash impacts of their commercial and operational decisions.
“As our report found, taking steps to further improve working capital practices and implement the necessary disciplines throughout the business could release a cash prize of up to €92bn across the European automotive industry.
“In a highly competitive and rapidly evolving market, it’s critical for all companies to recognise the importance of enhancing their performance in this arena.”
Over 610 firms were analysed for this study including 162 in Europe, of which 18 were UK based.
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