Automotive Market Recovery

The years 2013 and 2014 were banner ones for private-equity investment in the automotive sector—two of the most active since 2002. Deal flow looks set to remain strong in coming years, driven by a wave of potential secondary sales as firms look to exit the investments they made in the 2006–08 investment boom.   

However, we believe that the sector will require a more discerning eye in the future. Over the past five years, the recovery of new-car sales from the depths of the 2008–09 crisis created a natural tailwind that supported a number of investment theses in the sector. With vehicle sales now fully recovered, that tailwind seems to be fading. As a result, investors will need to look closer and analyze targets for their exposure to subtle dynamics that will generate pockets of outsize returns in the next five years. Here we examine several dynamics affecting the world’s largest aftermarket, the United States, and the world’s fastest-growing large aftermarket, China.

US Aftermarket: The Echo Effect and Changes in Distribution

The automotive industry is facing an array of challenges, both strategic and operational. In mature markets, strong demand for both high-end and low-cost models is polarizing the market, to the detriment of mid-range vehicles. Demand is growing more volatile as governments revise financial incentives for car ownership and customer behavior shifts to an increased use of rentals, car-sharing, and alternative modes of transport. Moreover, to maintain a dominant position, mature-market firms must succeed in emerging markets—especially in Asia, the primary source of future growth.

To meet these challenges, automotive manufacturers and suppliers must begin to master the complexities of operating on a global scale. They must also constantly adapt their product offerings to ever-shifting consumer preferences, primarily by tailoring production to market shifts and developing cleaner and more fuel-efficient vehicles. We help manufacturers seize opportunities during this period of transition by supporting them in a number of areas, including strategy, organization, operations, brand management, product launch, project management, lean manufacturing, purchasing, supplier management, and value-chain cost reduction. We also work upstream, with suppliers of mechanical; electrical; and electronic parts, components, and materials, as well as downstream with distributors.

Our strategy skills center provides our customers with the tools, experience, and expertise to develop and deploy their strategies in a complex and volatile global environment. To maintain or improve their competitive positions, organizations must constantly adapt their strategic direction in terms of changes in their environment but also their own managerial and operational capacities. We help to reconcile all of these dimensions in setting and achieving the structural choices affecting their future.

All in all, automotive supply will continue to be an attractive hunting ground for investors looking for GDP-plus opportunities. But knowing the terrain—the new market dynamics that will make some segments grow faster than others—is essential to success.

 

Executive Leadership

 Mr. James Moore

Mr. James Moore

 Mr. David Solomon

Mr. David Solomon

Productivity Solutions

The sector is popular with private investors. But before jumping in, buyers must understand the nuances that will drive growth in the next five years. We help companies create dynamic performance measurement with a focus on what really matters to the business.