The Experts
Bob Duffy
Carlyn Taylor
Ron Greenspan
Keith Cooper
Mike Selwood
David Woodward
Issue 2 - April 2010
The Bottom Line on the Top Line: When Will Revenue Growth Resume? - continued
AUTOMOTIVE
David Woodward
Related article:
What Will It Take for Top Line Growth to Return?
The global automotive industry is experiencing an unprecedented transformation. In the U.S., two of the three top original equipment manufacturers (OEMs) reorganized under Chapter 11 bankruptcy protection with financial assistance from the U.S. Treasury. Improving and sustainable macroeconomic conditions are critical for top line growth. Prerequisites include a return to sustainable economic growth, availability of credit and leasing financing, lower unemployment, less household debt, and increasing consumer confidence. Sustainable top-level growth will require efficient and well-designed cars that consumers want to buy.
What Will Be the Early Signs That Growth Is Returning?
Credible signs that growth is returning include an increase in OEM production schedules and inventory levels and improvement in macroeconomic indicators. A sustained increase in global car production with efficient levels of inventory will define recovery.
Mature automotive markets should be slower to rebound than the faster-growing BRIC economies – Brazil, Russia, India, and China. The U.S. market, for example, is not expected to reach 2007 levels until 2014-15 (see chart below) and a long-term rebound will depend on whether automakers are able to bring new cars to market that excite consumers enough to make these substantial purchases.
When Do We Expect This to Happen?
Global sales volumes should begin to recover in 2010, potentially achieving 2007 levels in 2011. The timing of the U.S. vehicle sales recovery will be influenced by the unemployment rate and the restoration of financial health for millions of U.S. households. In 2010, U.S. vehicle sales are expected to increase from approximately 10 million to 11 million units, with a more pronounced recovery expected in 2013.
Future growth in global production will increasingly be driven by demand in BRIC nations.
What Will Be the New Normal?
Top line growth in the next cycle will likely be slower than in the past as the industry adjusts to shifting market forces and macroeconomic factors.
The long-term impacts will likely include financial deleveraging, rationalization of the dealer network, shift of operating costs from fixed to variable, greater flexibility in labor costs, and a shift from regional to global manufacturing platforms. As a result, the industry should become more focused on developing and delivering products. The shift in demand toward BRIC markets will also have a profound impact on global car manufacturers and parts suppliers.
