Emerging markets drive volume growth in automotive sector in 2010
- IPO activity increases
- Global vehicle production rebounds in 2010, led by BRICs and other emerging markets, but North America and Europe yet to return to 2007 levels
- Optimistic outlook for manufacturers in 2011
LONDON, MOSCOW, 20 JANUARY 2011: 2010 saw the automotive industry gradually return to growth. Demand for vehicles in mature markets improved and continued to grow in emerging markets. IPO activity increased significantly, demonstrating a return of investor confidence.
Jeff Henning, Ernst & Young Global Automotive Markets Leader says: “2010 was a year of recovery, with gradual increases in demand in mature automotive markets and a resurgence of significant demand trends in the emerging markets. Many of the automakers and parts suppliers have seen the results of the significant organizational and operational restructuring needed for survival in 2009 result in improved profitability in 2010.”
Significant increase in IPOs between 2009 and 2010
- The significant rise in investors’ confidence in the automotive sector is reflected in the number of successful IPOs and the value of capital companies managed to raise in 2010.
- In total, automotive vehicle manufacturing, components and retail raised over US$21.6 billion (January – September) in 2010, compared to US$281.1 million in 2009. In terms of value, this puts the industry in third place, behind only the insurance and banking sectors.
- Even if the General Motors (GM) IPO (US$18.1 billion) was excluded, the industry ranks 18 out of 74 industries globally.
- Over 70% of automotive industry IPOs in 2010 originated from Asia, compared to almost 100% in 2009.
- The size of the GM IPO meant that the automotive sector in North America raised over 86% of the IPO funds in value terms. However, if the GM IPO value is excluded, the average value of automotive IPOs across all regions was approximately US$133 million.
Optimism among industry executives and capital allocation
- Ernst & Young’s Capital Confidence Barometer identified growing optimism among automotive executives, with 65% of the respondents confident in their ability to access funds for M&A and capital projects.
- In terms of allocating capital, executives in the industry identified organic growth (84%), investment in R&D (63%) and inorganic growth (35%) as their top three priorities.
Increase in global automotive manufacturing
- Global automotive production in 2010 is estimated to reach just below 74 million vehicles, a growth of over 23% compared to 2009. This is primarily driven by the growth in production from Asia and the rapid recovery in North American sales and production.
- North America is expected to register the highest growth in light vehicle production of over 38% in 2010, compared to the decline of 32% and 16% in 2009 and 2008, respectively. In volume terms, the 2010 light vehicle production will still be below 2008.
- While production in Asia overall was flat over 2008 and 2009, reflecting the significant slump due to the recession, 2010 has witnessed a significant revival in automotive production. The year is likely to close with the region contributing almost 50% of total global production, at 36.5 million vehicles, and registering growth of over 22% compared to 2009.
- In Europe, while Eastern Europe bore the brunt of production cuts in 2009, the region is likely to register over 20% growth in 2010. Western Europe vehicle production in 2010, however, has registered only a marginal increase as demand had been pulled forward with the scrappage schemes in different countries.
- With a positive economic outlook for most developed economies, 2011 is most likely to see an increase in vehicle sales. 2011 will also be a critical year to test the success of plug-in hybrid and electric vehicles, as a number of manufacturers begin to bring these vehicles to dealerships.
Changes apparent in vehicle mix
- The recession, globalization and changing demand dynamics have affected the mix of vehicles being produced and also the regions where they are manufactured. While scrappage incentives helped drive the sales and production of the Basic, Sub-compact and Compact vehicles (economy, premium and non-premium vehicles) during 2009 in Europe and North America, these segments have suffered a double-digit decline in registrations during 2010 as these schemes were ended, particularly in Western Europe.
- 2009 and 2010 have also been significant for the industry in terms of the noteworthy commitment made during these years to launch plug-in hybrid and electric vehicles. While the electric vehicle market had until now been driven by niche and small-volume manufacturers with limited capacities, the last two years has witnessed almost all the mainstream vehicle manufacturers demonstrating concepts or announcing plans to launch models across vehicle segments.
Henning concludes: “As most developed countries gradually return to economic recovery and the emerging markets continue to register double digit growth in sales, manufacturers need to capitalize on opportunities by ensuring they concentrate on product range. Manufacturers need to diversify their geographic footprint not only in terms of selling their vehicles or components, but also in terms of their manufacturing and sourcing strategies.
“Sustaining the organizational changes and creating the financial and operational capacity to differentially invest in geographic markets, products, people and future technologies will clearly be a key to success in 2011 and beyond.”
"Following the global trend, the Russian automotive market witnessed a quick recovery in 2010 with a 30% increase in new car registrations year on year and almost doubling of the amount of locally produced vehicles. Most of the local OEMs managed to restructure successfully while global OEMs continued to open new plants." – said Ivan Bonchev, Head of the Automotive Group in the CIS.
Notes to editors:
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