Corporate confidence and economic optimism are fueling growth agenda in automotive
Detroit, 15 January 2014
Confidence in global economy and appetite for M&A are at highest point in two years
With a robust deal-making environment on the horizon, leading automotive companies are becoming more bullish on the global economy, according to EY’s eighth Capital Confidence Barometer. The biannual survey shows that a number of indicators are at the highest level in two years, including outlook for growth, commitment to create jobs, and anticipated merger and acquisition activity.
Approximately three out of five automotive executives believe the global economy is improving, a number that has almost tripled since last year (22% vs. 61%). Another 27% indicate the economy is stable. The top two factors driving this confidence are improvements in economic conditions in mature economies and stabilization in the major emerging markets.
“Our latest Barometer for the automotive industry shows rising levels of confidence in economic growth, employment growth and credit availability for both Europe and the US,” says Jim Carter, Americas Automotive Transaction Advisory Services Leader for EY. “This sentiment is reflected throughout the report, with companies indicating an increased willingness to carry out growth agendas.”
Of the 173 automotive executives surveyed, 59% expect to create jobs and hire new talent – the highest level ever in EY’s automotive edition of the Barometer.
Growth expectations continue to rise as 85% of automotive executives anticipate global economic growth. The majority of respondents expect growth of between 1% and 3%, although 20% anticipate an increase in excess of 3%, up from 14% just six months ago.
In addition, 88% of respondents view credit availability as stable or improving, leading 61% of companies to consider growth their primary focus – up from 55% six months ago. This confidence – coupled with positive views on the global economy and sound economic fundamentals – sets the stage for a robust deal-making environment, according to EY’s Carter.
Mergers and acquisitions
Merger and acquisition activity looks promising in the new year. Almost 40% of respondents plan to pursue an acquisition, while 70% expect deal volumes to increase.
Confidence in the likelihood of closing deals, the quality of acquisition opportunities and the number of acquisition opportunities have all increased significantly over the last 12 months.
There is also a clear focus on gaining market share in existing and new markets. Over the past year, 54% of automotive executives indicate they have placed greater focus on investing in the BRIC (36%) and non-BRIC (18%) emerging markets as they search for new strategic opportunities. But while companies appear poised to make deals in emerging markets, mature markets continue to be an important investment destination as well.
“While certain emerging markets have experienced slowing growth, executives remain largely optimistic about the opportunities they present, provided greater rigor is applied to deal-making,” adds Carter. “Unlike their mature counterparts, emerging markets continue to rapidly evolve so transaction risk must be managed more closely.”
The Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their capital agenda — EY’s framework for strategically managing capital.
It is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). The panel comprises select global EY clients and contacts and regular EIU contributors.
For more information on EY’s Automotive Capital Confidence Barometer, visit www.ey.com/automotive.
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