Deloitte says more needed to revitalize ailing automotive industry
Around US $50 billion in economic stimulus funds a step to recovery
Contact: Isabel Milojevic
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Stuttgart, 23 March 2009 — With consumer confidence at all time low 1 , the automotive industry is struggling to see the light at the end of the global economic downturn. According to an analysis by Deloitte Touche Tohmatsu (“Deloitte”), the global automotive industry is expected to benefit directly from an injection of around US$50 billion 2 in economic stimulus funds. The funds, however, are just a small percentage of the estimated $3.6 trillion in economic stimulus packages committed by various governments around the world. (See Table 1: Economic stimulus efforts target the automotive industry.)
“What the automotive industry most needs is to have customers buy again,” says Hans Roehm, global managing partner with Deloitte’s Global Manufacturing Industry Group. “The government stimulus efforts so far are helpful, but more is required to really boost consumer confidence and drive them back into the showrooms to buy cars. That’s when we will see a real turning point for the industry.”
A substantial portion of the stimulus funds have been committed to stricken auto makers General Motors Corp. (GM), Chrysler LLC and GMAC LLC, the auto-lending arm of GM, as part of the US$700 billion Troubled Asset Relief (TARP) program in the United States.
“The mix of the direct assistance to automakers and other incentives to spur demand in the market has been a lifeline to industry survival,” says Michelle Collins, automotive industry leader for the Deloitte member firm in the United States. “However, incentives to increase demand must go hand in hand with measures to increase consumer confidence and to make credit more free flowing to finance consumer purchases and dealer inventory plans.”
The Deloitte’s Global Manufacturing Industry Group’s analysis shows that in markets like China, Italy, France, and Germany, consumers are being encouraged to replace their older model vehicles with new ones.
“This scrap bonus concept seems to be working and perhaps could be adopted in more markets,” says Martin Hoelz, automotive industry leader for the Deloitte member firm in Germany. “It’s a simple but innovative idea which at least here in Germany is helping to stimulate demand. New car sales in Germany spiked 22 percent last month, bolstered partly due to the €2,500 (US$3,200) subsidy for people who turn in their old car and buy a new one.” 3
The Deloitte analysis reveals that in nearly all of the 18 markets covered, the economic stimulus efforts is expected to increase sales in the smaller car segments. In addition, alternative fuel technology is also an area receiving attention from stimulus packages in markets such as Australia, Canada, China, Germany, France, Spain, United Kingdom, and United States.
“Innovation is at the heart of the automotive industry,” remarked Kevin Gromley, managing director for Deloitte member firms’ manufacturing industry groups in the Asia-Pacific region. “The stimulus efforts will encourage the automotive companies to continue their product development efforts. And for markets like Australia and China, this support is vital to sustaining the research investments into greener alternative fuel technologies.”
“Incentives like these will translate to consumers spending once more,” added Roehm. “But it also encourages corporations to take action. Just as an example, the Deloitte member firm in the UK launched a new Deloitte All Employee company car scheme so that all 12,000 employees nationwide can enjoy affordable, environmentally friendly vehicles. 4 It just goes to show that you don’t have to be in the automotive industry to make an impact.”
Table 1: Economic stimulus efforts target the automotive industry
|Location||# of cars made per 1000 ppl.||Light vehicle sales 2008 (in '000)||Light vehicle forecast 2009 (in '000)||Value of stimulus (in US$)|
|SE Asia ^ 15||176||932||752||$33.9bn|
|Central and Eastern Europe # 22||332||1001||790||*$3.7bn|
|Location||Value to Auto sector in the stimulus (in US$)||Stimulus supports alt. fuel types?||Stimulus to have a positive impact on small car sales?||Stimulus pushes replacing old vehicles?|
|India 12||Tax cuts||No||Yes||No|
|Korea 14||Tax cuts||-||Yes||No|
|SE Asia ^ 15||-||-||-||-|
|Central and Eastern Europe # 22||-||-||-||-|
1 “Auto sales: It's not the bottom yet,” Free Press, 4 March 2009. The Conference Board, a non-profit organization that has been monitoring consumer confidence since 1967, said 24 February that its measure of consumer confidence plunged in February to an all-time low of 25, down from 37.4 in January.
2 Based on analysis of secondary sources of 12 of the 18 markets included in the assessment: Canada, Argentina, US, Brazil, Mexico, China, Australia, Germany, France, Italy, Spain, and UK. Recognizes that the number may be much higher to include other markets and the fact that the details of the stimulus packages may not be clearly separated to indicate direct funds impacting the automotive sector.
4 Press release: Deloitte launches green company car scheme for all employees, Deloitte UK, 16 February 2009.
5 " Canada unveils stimulus package," BBC News; "Canada to aid car manufacturers," BBC News. 28 January 2009.
6 "Obama signs $787B US stimulus package into law," CBC News, 17 February 2009; "Congress passes bailout, focus shifts to fallout," Reuters, 3 October 2008; "Congress leaders announce tentative $700 billion Wall Street bailout plan," NY daily News, 28 September 2008; "The Wall Street Bailout Plan, Explained," The New York Times, 21 September 2009; "Bush Announces $17.4 Billion Auto Bailout," U.S. News Rankings, 19 December 2008; "Bush signs stimulus package," USA Today, 13 February 2008.
8 "Brazil spends 94.8 bln USD in economic stimulus measures," Xinhua News Agency, 18 December 2008; "In Brazil, Whiplash on Assembly Lines," Washington Post Foreign Service, 1 December 2008; "Auto industry gets $1.8 billion credit line in Sao Paulo," Xinhua, 11 November 2008.
10 " $42 billion nation building and jobs plan," Prime Minister of Australia-Media release, 3 February 2009; "Australia unveils massive economic stimulus package," AFP, 13 October 2008; "Australia's Auto Industry Gets $2.4 Billion Aid Package," Recession.org.
15 " Singapore unveils $13.7bn stimulus package;" FT.com. 22 January 2009; "Premier unveils NT$500 billion stimulus package," The China Post, 22 November 2008; "Malaysia’s economic stimulus package: not aggressive enough?" Malaysian Institute of Economic Research, November 2008; "Stimulus package approved," The Straits Times, 13 January 2009.
21 " Britain launches stimulus plan to fight recession threat," Agence France Presse, 24 November 2008; "Is Britain's Stimulus Plan a Wise Move?" Britain Business Week, 24 November 2008; "British Government Presents £2.3-bil. Automotive Aid Package," Global Insight Daily Analysis.
> Source: Economist Intelligence Unit. 2008.
About the automotive analysis
A summary of the government economic stimulus efforts was sourced and compiled using various external media sources based on information available to the end of February 2009. For the purpose of the analysis, 18 key automotive markets were evaluated spanning locations in the Americas, Asia-Pacific, and Central and Western European regions.
Locations/markets included in the summary are: Canada, United States, Argentina, Brazil, Mexico, Australia, China, India, Japan, Korea, SE Asia, Germany, France, Italy, Russia, Spain, UK, and Central and Eastern Europe.
Deloitte Touche Tohmatsu Global Manufacturing Industry Group
The Deloitte Touche Tohmatsu (“Deloitte”) Global Manufacturing Industry Group comprises more than 750 member firm partners and 12,000 industry professionals in over 45 geographic regions. The group’s deep industry knowledge, service line expertise, and thought leadership allows them to address complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain the most sought-after professionals and instill a set of shared values centered on integrity, value to clients, and commitment to each other and strength from diversity. Deloitte member firms provide professional services to more than 81 percent of the manufacturing companies in the Fortune Global 500®. For more information about the Deloitte Global Manufacturing Industry Group, please visit www.deloitte.com/manufacturing.
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