Leading automotive companies are beginning to believe in the global economy again, but have yet to fully commit to implementing aggressive growth strategies, according to EY’s seventh Capital Confidence Barometer for the automotive industry.
Of the 147 automotive executives surveyed, 52 percent view the global economy as improving – up from just 22 percent six months ago. Also, 63 percent of respondents report a positive sentiment for global economic growth, the highest level in two years and almost triple that of six months ago.
In addition, 83 percent of respondents expect growth in the global economy in the next 12 months, leading 45 percent of companies to plan for the hiring of new talent in 2013 – up from 22 percent in October of 2012.
Conducted by the Economist Intelligence Unit, the EY Capital Confidence Barometer is a bi-annual survey of senior corporate executives from around the world. The subset of automotive findings gauges corporate confidence in the economic outlook and identifies boardroom trends and practices based on the way companies manage their capital agenda.
“Credit availability continues to improve and corporate cash balances remain high, but the Barometer shows that while executives are trending toward an investing agenda, most are keeping it low risk,” says Jim Carter, Americas Automotive Transaction Advisory Services Leader for EY. “The Eurozone crisis and the risk of slowing growth in emerging markets are still concerns for decision-makers, which is prompting many respondents to adjust their strategies and proceed with caution.”
Despite the fact that 54 percent of respondents feel credit availability is improving – the highest level in two years – more than half point to cash as the primary source of deal financing over the next year. This is another indicator of the cautionary mindset many companies in the industry have. For those that plan to refinance, 65 percent will focus on refinements, such as extending maturities, reducing interest rates and removing covenants. Companies with excess cash are generally deploying it to take advantage of inorganic and organic growth versus returning it to stakeholders.
Mergers and acquisitions
Seventy percent of respondents expect global deal volumes to improve over the next 12 months; and 33 percent expect their own company will pursue one or more acquisitions in the next 12 months. This is largely driven by higher quality opportunities becoming available and an appetite for growth amidst stabilizing production volumes. Almost 80 percent of executives expect the deals they pursue to be greater than US$50 million. Only 4 percent of respondents expect the price/valuation of M&A assets to decrease over the next year, compared with 30 percent in October 2012.
But while companies appear poised for growth, many are still relying on organic growth plans and cost-control strategies, which saw them through the worst part of the economic crisis.
“The current generation of corporate leaders has been rewarded in recent years for their conservative instincts, but we may be nearing the point where this sustained caution itself becomes risky,” adds Carter. “Valuation levels and sentiment suggest there is a window of opportunity to seize first-mover advantage in a market gaining momentum. History shows that first movers can create value and position themselves for sustained market leadership.”
For more information on EY’s Capital Confidence Barometer for the automotive industry, visit www.ey.com/automotive.
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