Mergers and partnerships the only way forward for car manufacturers

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Bloomberg reports that global auto sales will rise at a 2.6% annual rate during the next seven years, down from 3.1% from 2007 through 2014, the Southfield, Michigan-based advisory firm said in a study.

At the same time companies also will have to deal with the pressures on production of changing technologies and the perceived wisdom that today’s volume producers will have to radically scale down output as autonomous vehicles reduce the demand for car ownership (see Mass market car makers are doomed by autonomous vehicles).

“Significant, and incremental, investments will be required, likely coming at the same time growth is slowing,” AlixPartners said.

Sergio Marchionne, CEO of Fiat Chrysler, has been desperately seeking consolidation in the industry because of the difficulty earning adequate returns but with, so far, no takers.

The AlixPartners study projects that US sales may peak next year and that annual growth in China will slow to 5.2% from almost 17% between 2005 and 2014.

“When you take China out of the growth story, the global auto industry is hardly growing,” said Mark Wakefield, a managing director at the firm.

“Last year, we thought the downturn would be sooner because of gas prices. We thought the downturn would be 2017-18.”

AlixPartners identified four future challenges for the industry: connected cars, autonomous vehicles, car sharing, and electric cars and components.

The connected-car market is forecast to increase to $40Bn (£25.2Bn) worldwide by 2018 from $13Bn five years earlier, according to the firm. The number of car sharing users has climbed 39% since 2006 and is expected to increase an additional 32% through 2020, to 26M.

Electric vehicles are projected to reach 6.5M annually by 2025, accounting for 6% of global sales, according to the study. As cars become more electrified, 48-volt systems may be in 14M vehicles worldwide by 2023.

AlixPartners said automakers face three choices in adapting to the changes: a “pick-your-spots” approach; forming partnerships short of combining; and mergers.

“We expect a considerable wave of consolidation and partnerships in the auto industry,” Stefano Aversa, a vice chairman at the firm, said in a statement. That may begin with a merger of two automakers, “but will also encompass the suppliers and new entrants from the technology sector.”

Find out about the here and now of autonomous driving at Active Safety: ADAS to Autonomous USA Conference & Exhibition (October 12-13, Novi, MI).


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