Issue: Aug 2009


AlixPartners Releases Highlights of Comprehensive Annual Automotive Study



Small Cars to Represent Half of Global Growth Over Next 10 Years, Challenging Profitability; Cash Issues Are Key to Suppliers and Automakers Alike

by Jon Knox

Battered like never before by the current recession, the North American auto industry is likely to see sales post-recession return not to the inflated levels of the recent past but rather to a "new normal" level of 15 million to 16 million units per year. That's according to highlights of a study released here today at the Center for Automotive Research's annual Management Briefing Seminars by AlixPartners LLP, the global business-advisory firm.

"Because of well-known factors earlier this decade like the housing and stock bubbles, the auto industry skipped what would have probably been a cyclical downturn around 2001 or so, and about 17 million units of sales were 'pulled ahead,'" said John Hoffecker, a managing director of AlixPartners and leader of the firm's global automotive practice, who spoke here today. "In the last two years, the industry has in turn 'given back' about 7 million units, leaving 10 million units yet to be foregone before the industry even gets back to zero.
The good news is, the indicators we're looking at say the industry rebound will probably come earlier than some have been forecasting, around 2013. The bad news is, when the rebound comes, it's quite likely that sales will plateau at 15 million to 16 million per year, and that this 'new normal' level of demand will last until the peak of the next business cycle."

Hoffecker said the AlixPartners study also found that small cars will represent half of global growth the next decade, greatly challenging the profitability of automakers and suppliers alike. He pointed to such areas as advanced powertrains, electronics, branding and speed-to-market where companies can distinguish themselves in the coming battle.

The study also finds, said Hoffecker, that cash should be of strategic concern for companies of all kinds in the auto industry going forward. He noted that getting cash under control is the key to survival for virtually all companies on the edge. On the other hand, he also noted that cash can be used as a strategic weapon by healthier companies, in that it can be used to acquire market share, technologies and even whole companies.

"Today, cash should be not just king, but supreme leader," said Hoffecker. "In the old days in autos, it was all about the big eating the small. Then it was the swift eating the slow. Going forward, it's going to be the liquid drowning the illiquid."

The AlixPartners study also revealed that 24% of suppliers globally are in financial danger (in danger of going bankrupt within the next two years), a 25% jump from a year ago, and that 41% of U.S. auto bankruptcies since the first quarter of 2008 were private-equity-owned companies. However, it also found the top 25% of North American suppliers are, in fact, competitive with anyone in the world.

"The fact that some North American suppliers can continue to do well, even in this environment, should give hope to other ambitious managements that, by pulling the right levers, there really is hope."

About AlixPartners

AlixPartners is a leading global business-advisory firm offering services across four main disciplines: operational performance improvement and strategic consulting, financial restructuring and bankruptcy reorganization, litigation consulting and financial advisory services. The firm's expertise is in helping clients anticipate, evaluate and successfully resolve urgent, high-impact business challenges in an increasingly complex legal, regulatory and economic landscape. Drawing on the experience of more than 900 employees from 14 offices across North America, Europe and Asia, the firm commits small teams of seasoned professionals to deliver results when it really matters. For more information, visit www.alixpartners.com.

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