Press release

Corporate confidence in the auto industry on the rebound

Detroit, 10 July 2013

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Positive sentiment for global economic growth at highest level in two years

Leading automotive companies are beginning to believe in the global economy again, but have yet to fully commit to implementing aggressive growth strategies, according to EY’s seventh Capital Confidence Barometer for the automotive industry.

Of the 147 automotive executives surveyed, 52% view the global economy as improving – up from just 22% six months ago. Also, 63% of respondents report a positive sentiment for global economic growth, the highest level in two years and almost triple that of six months ago.

In addition, 83% of respondents expect growth in the global economy in the next 12 months, leading 45% of companies to plan for the hiring of new talent in 2013 – up from 22% in October of 2012.

 

Conducted by the Economist Intelligence Unit, the EY Capital Confidence Barometer is a bi-annual survey of senior corporate executives from around the world. The subset of automotive findings gauges corporate confidence in the economic outlook and identifies boardroom trends and practices based on the way companies manage their capital agenda.

“Credit availability continues to improve and corporate cash balances remain high, but the Barometer shows that while executives are trending toward an investing agenda, most are keeping it low risk,” says Jim Carter, Americas Automotive Transaction Advisory Services Leader for EY. “The Eurozone crisis and the risk of slowing growth in emerging markets are still concerns for decision-makers, which is prompting many respondents to adjust their strategies and proceed with caution.”

Despite the fact that 54% of respondents feel credit availability is improving – the highest level in two years – more than half point to cash as the primary source of deal financing over the next year. This is another indicator of the cautionary mindset many companies in the industry have. For those that plan to refinance, 65% will focus on refinements, such as extending maturities, reducing interest rates and removing covenants. Companies with excess cash are generally deploying it to take advantage of inorganic and organic growth versus returning it to stakeholders.

Mergers and acquisitions
Seventy percent of respondents expect global deal volumes to improve over the next 12 months; and 33% expect their own company will pursue one or more acquisitions in the next 12 months. This is largely driven by higher quality opportunities becoming available and an appetite for growth amidst stabilizing production volumes. Almost 80% of executives expect the deals they pursue to be greater than US$50 million. Only 4% of respondents expect the price/valuation of M&A assets to decrease over the next year, compared with 30% in October 2012.

But while companies appear poised for growth, many are still relying on organic growth plans and cost-control strategies which saw them through the worst part of the economic crisis.

“The current generation of corporate leaders has been rewarded in recent years for their conservative instincts, but we may be nearing the point where this sustained caution itself becomes risky,” adds Carter. “Valuation levels and sentiment suggest there is a window of opportunity to seize first-mover advantage in a market gaining momentum. History shows that first movers can create value and position themselves for sustained market leadership.”

For more information on EY’s Capital Confidence Barometer for the automotive industry, visit www.ey.com/automotive.

-Ends- 

About EY
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.

How EY’s Global Automotive Center can help your business
The global recession reset the automotive sector landscape. As the sector recovers, automotive companies across the value chain must focus on profitable and sustainable growth, financial and operational stability, investments in new technologies and seizing opportunities in high-growth markets. If you lead an automotive business, you need to anticipate trends, identify implications and make informed decisions that support your business goals. Our Global Automotive Center enables our worldwide network of more than 7,000 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. These insights, combined with our technical experience in every major global automotive market, will help you to accelerate strategies and improve performance. Whichever segment of the automotive sector you are in — from component suppliers to commercial or light vehicle manufacturers or retailers — we can provide the insights you need to succeed.

Corporate confidence in the auto industry on the rebound


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