Lingering Low Employment Nationally, Generational Demographic Shifts, Potential Contagion From Europe Present Big Challenges to the Auto Industry, According to New AlixPartners Study
Published on Tuesday, 26 June 2012 01:22 Written by TradersHuddle Staff
DETROIT, June 26, 2012 (GLOBE NEWSWIRE) -- Though the North American auto industry's performance has stood out of late compared with that of other industries in today's sluggish economy, that status is threatened by lingering low employment in the economy, fast-rising overhead costs at automakers and suppliers alike, and big generational demographic shifts in which Millenials and other young people care less about cars than past generations while aging Baby Boomers simply have less reason to drive. That's according to a comprehensive annual study by AlixPartners, the global business-advisory firm.
As a result of these and other factors, the 2012 AlixPartners Automotive Outlook predicts that there are 5 million fewer potential car-buyers today than five years ago, that U.S. auto sales will be a conservative 14.3 million units this year and that sales in the U.S. and Canada are not likely to exceed 16 million through at least 2015.
Said John Hoffecker, managing director at AlixPartners and head of the firm's Automotive Practice: "It's long been a truism that if people don't have jobs, they don't buy cars. Given lingering low employment in this country, plus the fact we estimate that in the last decade incentives 'pulled ahead' more than 18 million units of sales, we see true, underlying demand being a big issue for the industry going forward. Successful companies will be those that stop the old bad habits of yesteryear from creeping back into their systems while making aggressive, well-informed investments in product -- all the while recognizing that they're unlikely to get a whole lot of help from the economy."
Other key findings of the study include the following:
- Industry profitability: Despite big production increases in the past year, profitability (as measured by median EBIT percentage vs. production) for both automakers and suppliers in North America has been flat -- despite that automotive raw-materials costs, which represent about half of most companies' total cost structure, are down 21% per vehicle from their April 2011 peak.
- Suppliers: Supplier SG &A levels have risen back up to pre-restructuring levels, due to about a $1-billion-per-quarter overhead-spending increases since the third quarter of 2009, representing about a $4.8 billion reduction in supplier net income in that time.
- "Mega-platforms": Globally, vehicle platforms able to yield about a million or more units in production are forecast to double by 2017, and to account for almost all (96%) of industry growth in that time (47 million units in 2017, vs. 23 million last year), presenting both challenges and opportunities for OEMs and suppliers. "The best of these platforms will enable a very wide variety of vehicle types and sizes, including different vehicle widths as well as different lengths, but while still delivering superb vehicle dynamics," said Hoffecker. "Success in these platforms will require companies to act truly global across all their major customer-facing-processes, including engineering, quality, manufacturing and launch management. In addition, significant internal improvements and global consistency will be required for costing, pricing and capital-allocation processes."
- Changing demographics: Overall, demographics are expected to be responsible for up to 15% of the lower underlying demand in North America, with about 13% of that attributable to less vehicle use (mostly on the part of Boomers) and about 2% attributable to a lower tendency to drive (mostly on the part of Millenials and other young people). "The American auto industry is about to see the rise of Generation 'N' – as in 'neutral about driving,'" said Mark Wakefield, a director in AlixPartners' Automotive Practice. "This cohort, which is as big as the Baby Boomer cohort and which grew up on the Internet and not so much on cars, could well present the industry with an even greater challenge in the area of reduced fundamental demand."
- M &A outlook: Bearish valuations in the industry and low multiples, down 27% last year, may present opportunities for strategic plays, both among suppliers in North America and OEMs globally, particularly in Europe. Said Christian Cook, also a director in AlixPartners' Automotive Practice: "With EBITDA multiples off more than a quarter and discounted transaction values remaining about flat with the depressed levels of the year before, this may well be a time for companies to be thinking about strategic acquisitions or, just as important, divestitures, especially with private equity most likely hesitant to return to the auto industry. The key, as always, is exactly what kind of deal you make, the strategy behind it, the due diligence behind it and, of course, it operational execution."
- Europe: The worsening financial crisis in Western Europe is especially adding to the woes of European volume players, who are losing ground to both value and premium players -- as Europe already faces about 25% structural assembly-plant overcapacity and as about 40% of European plants suffer from utilization lower than the "safety zone" of 75% to 80%.
Concluded Hoffecker: "The last few years of steadily increasing volumes have benefitted virtually all in North America, after a difficult period of restructuring. However, with possible contagion from Europe further weakening the U.S. economy, fast-changing consumer demographics further skewing underlying demand and the challenge of efficiently implementing global mega-platforms facing it, the North American auto industry, despite its current success, has its work cut out for it in coming years. Perhaps the industry's biggest challenge, though, is an internal one: whether it will be satisfied with its recent performance, or prepare now for the big challenges ahead in this still-cyclical industry."
About the Study
The 2012 AlixPartners Automotive Outlook is based on a benchmark analysis of 38 automakers and 233 automotive suppliers. Public economic data and forecasts were also used in the study.
AlixPartners LLP 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.
The AlixPartners LLP logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=11665
- Volcano Announces Preliminary Results from the ADVISE II Study and Inclusion in the SYNTAX2 Trial During Hot Line Late Breaking Clinical Trial Sessions at EuroPCR 2013
- Dairy Crest CEO Interviewed on Full-Year Results
- Survey Copter Flies to Stratasys for 3D Printing of UAV Systems
- India Construction Chemicals Market Set to Surpass USD 1.13 Billion Revenues by 2018 Says TechSci Research
- Maharishi University of Management to Graduate Largest Class; 2013 Awards Ceremony to be Webcast
- Texas Legislature Proposes New Veterans Benefits
- Appigo Launches New Todo Pro App for Android on Google Play with Task Management and Collaboration for Business and Teams
- NanoMaterials’ NanoLub RC-X Extreme Pressure Lubricants for Motorbikes to be Distributed in Vietnam by Linh Phan Co. Ltd.
- Commercial Pressure Washer Debuted By Daimer Industries For Wheelchair Cleaning
- New Melograno Dinnerware Collection Added for Stylish Home Decor
Related Partner Headlines
- Petronas Posts 30% Decline In Q2 Net Profit - Benzinga
- Mail.Ru H1 Net Profit Rises 54.3% - Benzinga
- Advanced Medical H1 Pretax Profit Surges 72% - Benzinga
- Markets Jump After FOMC Comments on Easing - Benzinga
- Feel the Energy and Excitement of the Forex & Options Expo in Las Vegas - Benzinga
- Amazon's Living Social Stake Sees Value Decline - Benzinga
- Fender Withdraws IPO - Benzinga
- Benzinga Market Primer, Friday July 6: Non-Farm Payrolls Edition - Benzinga
- An Introduction to Forex Trading - Benzinga
- Benzinga Market Primer, Friday June 22 - Benzinga
Latest Partner Headlines
Dow Today: Verizon Communications (VZ) Higher - TheStreet.com
Separating the Bargains From the Busts - TheStreet.com
Cramer Quick Take: The 60-Inch TV Will Be Key This Holiday - TheStreet.com
Cramer Quick Take: Cisco Wins If Fiscal Cliff Is Resolved - TheStreet.com
Gap Up and Sit - TheStreet.com
Apple, Intel, MicroStrategy: Tech Winners & Losers - TheStreet.com
Windows 8 PC Sales Disappointing: Report - TheStreet.com
Cramer Quick Take: Buy Home Depot and Lowe's - TheStreet.com
Dow JonesCompany ID [INDEXDJX:.DJI] Last trade:15,307.17 Trade time:4:44PM EDT Value change:▼80.41 (-0.52%)
S&P 500Company ID [INDEXSP:.INX] Last trade:1,655.35 Trade time:4:43PM EDT Value change:▼13.81 (-0.83%)
NASDAQCompany ID [INDEXNASDAQ:.IXIC] Last trade:3,463.30 Trade time:5:15PM EDT Value change:0.00 (0.00%)
In The Wires
Volcano Announces Preliminary Results from the ADVISE II Study and Inclusion in the SYNTAX2 Trial During Hot Line Late Breaking Clinical Trial Sessions at EuroPCR 2013
Dairy Crest CEO Interviewed on Full-Year Results
italydesign.com Awarded A+ Rating from Better Business Bureau for Exemplary Customer Service
Big Data, Analytics, Web Applications, Personal Data and Therapists?
UWDress.com is Launching a Promotion of Bridesmaid Dresses
Max! Healthy Vending Machines in Tune with Burgeoning Organic Foods Market
LA Dodgers Ex-Owner Strong-Armed to Revisit his Potentially $1.54 Billion Record-Breaking Divorce
Mpact Magic Announces “Insurance” for Small Business Advertising