Automotive
Deals Activity: Moderate
Restructuring Activity: High
Deals activity in Automotive
- 1. Deal activity has experienced significant volatility, particularly in Q2 2020 where volumes decreased 75% on the previous period.
- 2. But deal flow has now returned to broadly pre-pandemic levels.
- 3. There’s a high likelihood multinational Tier 1/2 suppliers will seek to divest non-core assets amid immense structural changes in the sector and a focus on new technologies and product offerings.
Restructuring activity in Automotive
Commodity cost pressures and higher factory wages remain a key factor, as the prices of key raw materials (iron, steel and plastic) have all risen significantly.
The shift in consumer buying patterns continues apace, with the move towards hybrid and EVs transforming the auto supply chain.
Auto manufacturers are changing their business models to reflect ESG considerations away from internal combustion.
Ongoing raw material shortages, fundamentally semiconductor chips, means output is still lower than pre-pandemic.
Automotive
The automotive sector remains in the grip of competing pressures:
Supply Chain
An ongoing shortage of crucial electronic components is creating a challenge for OEMs, leaving some unable to fulfil orders and causing long delays. Consequences for the sector are far-reaching, from car hire firms unable to pick up fleet discounts on renewals to double-digit percentage rises in second-hand prices year on year. Issues stemming from the pandemic may take years to fully resolve.
Inflation
Rising costs remain a real challenge as OEMs press down on Tier 1/Tier 2 suppliers to help sustain margins in a competitive market.
Demand pressures
Current economic volatility is likely to dampen consumer demand for new vehicles – which could alleviate some of the ongoing supply issues plaguing the sector. However, sustained high fuel costs may persuade some drivers to replace thirsty older vehicles with more efficient models.
Technological innovation
It has proven something of a mixed blessing, but technological revolution is transforming the industry. New models require significant investment in powertrain technology and many customers are wary while the technology remains in relative infancy. The impact on the supply chain is even more profound, with growing complexity of some sub-assemblies, while other components (e.g. exhausts) become increasingly obsolete.
Project Risedale
Working for an OEM client, we ensured continuity of supply with a distressed powertrain supplier. After a period of several months assessing options, we developed an innovative solution whereby the OEMs involved would back-stop a sale transaction, continuing to fund the business through the transaction and commercially supporting the purchaser.
Project Pool
Working with a large car retailer, we helped prepare for a site rationalisation programme by analysing underlying and potential performance and alternate use values. We also assessed the ability to reduce central costs and overheads in line with the proposed reduction in dealer sites and other cost reduction and process efficiency initiatives.
Find Your Expert
The automotive team at Interpath is one of the strongest anywhere in the market, with a number of professionals boasting decades of automotive experience, both in practice, and as part of the industry itself. For a full list of our senior people with experience in this sector use the button below.
Our senior team
