Nov 17, 2020

Deloitte: Road to recovery for automotive post COVID-19

Janet Brice
5 min
Five-step plan from Deloitte Insights to re-start the global the automotive industry...

Nearly half of US consumers are planning to keep their current vehicle following COVID-19, according to research from Deloitte Insights. But what does this mean for the global automotive industry?

As the pandemic is influencing the way people think about mobility from car ownership to public transport, Deloitte has produced an insightful report, How the pandemic is changing the future of automotive, which calls on stakeholders to join forces and get the global automotive engine running smoothly again.

Deloitte has highlighted five-step-plan manufacturers could follow on their road to recovery. This includes: 

  1. Collaborate with dealer networks
  2. Agile in response
  3. Protect critical investments
  4. Focus on assets
  5. Collaborate on innovation

According to industry forecasters, global new vehicle sales is set to total more than 70 million units in 2020 - a downgrade of 18.5 million light vehicles from January’s estimates. “To put that in context, the drop in global demand this year alone is roughly equivalent to light vehicle sales expectations in the United Kingdom, Japan, and the United States combined,” comments Deloitte.

May auto sales figures were encouraging, but a Deloitte’s study found that nearly half of US consumers (47%) are now planning to keep their current vehicle longer than they originally expected. This level is echoed in other markets including China (65%), South Korea (63%), and Japan (48%). 

“It also represents a challenge for manufacturers looking to kick-start new vehicle sales and casts a shadow over expectations for the shape of the demand curve moving forward. A full demand recovery may take years. 

“An immediate, V-shaped recovery is looking increasingly far-fetched, as various government assistance initiatives start to dissipate in the coming months, leaving consumers to face the full reality of a diminished financial capacity,” said the report.

Deloitte’s five-point recovery plan in detail:

1. Collaborate with dealer networks

Increase collaboration with dealer networks to accelerate the adoption of digital tools designed to create frictionless engagement with customers. 

“Even though the jury may still be out as to whether consumers will migrate en masse to buying cars fully online, there are still many areas where integrated digital tools can have a transformational impact on the vehicle purchase process and overall brand engagement,” comment Deloitte.

“At the same time, manufacturers can accelerate the deployment of digital tools back through the supply chain to maximise transparency and to detect potentially crippling issues early on.”

Establishing digital supply networks and deploying artificial intelligence can enable smarter planning decisions and improve overall agility through a deeper and broader understanding of the system, the report recommends.

2. Agile in response

Maintain the manufacturing discipline gained through the last upcycle, focusing on producing vehicles that consumers want to buy.

“Companies that are trying to restart assembly operations under a pre-pandemic strategy may need to be much more agile in order to respond to shifts in the vehicle mix caused by a growing consumer affordability issue,” says Deloitte.

3. Protect critical investments

Deploy technology transformation tools to identify and prioritise further cost-cutting opportunities while protecting critical investments that can yield significant forward benefits (powertrain electrification and smart factory). 

“Cost cutting in a downturn is certainly not revolutionary but knowing which investments in innovation to protect given longer-term macro trends can be a critical success factor for automotive companies moving forward,” said the report.

4. Focus on assets

Isolate areas of the business that represent a cash drain and make the hard decisions required to rehabilitate, sunset or divest underperforming assets. 

“Continuing to prop up unprofitable assets will be increasingly difficult moving forward, particularly manufacturing operations that struggle to meet a minimum capacity-utilisation threshold.”

5. Collaborate on innovation

Ramp up the exploration of strategic partnerships to maintain a focus on innovation while sharing investments and minimising risk. 

“Traditional notions of competitive exclusivity between original equipment manufacturers (OEMs) may be giving way to the realities of emerging market conditions. Finding ways to collaborate on innovation may become a strategic imperative for automotive companies,” said Deloitte.

How could consumers re-engage with the automotive industry?

Living through various levels of lockdown consumers have ramped their use of digital tools to consume goods and services – which could extend to buying vehicles.

Deloitte’s study suggests that most consumers are not looking to buy their next vehicle online, other than in India (71%) and China (45%). Interest in an online purchase process is limited to one in four consumers or fewer in other markets around the world. 

“The reason for this may be a long-standing acknowledgment that certain aspects of the vehicle sales process, such as the test drive, remain difficult to digitise,” says Deloitte.”

Are consumers changing the way they view mobility?

Deloitte statistics reveal physical distancing means vehicle ownership is becoming valuable to people with 79% of consumers in France, 74% in the United States, 69% in the United Kingdom. 

A total of 56% of people surveyed in the US indicated they are planning to limit their use of public transit over the next three months due to hygiene reasons. A similar sentiment prevails in Italy (63%), Spain (60%), Australia (53%), and Japan (48%). 

Translating this consumer sentiment into sales may prove challenging due to the cost. Deloitte points out that financial institutions will play a pivotal role in determining whether consumers will be able to maintain access to credit and stay in the market.

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May 15, 2021

M&A activity key lever for future tech sector growth

Kate Birch
2 min
With M&A activity in the technology sector soaring, dealmaking is likely to be the key lever for growth as businesses look to recover post-pandemic

Despite the continuing uncertainty of the pandemic, the tech sector has witnessed soaring dealmaking activity over the past year, rocketing in the second half of 2020, with the last quarter of 2020 a record one for M&A activity, and momentum continuing into 2021.

Dealmaking in tech sector soars in past year

And the latest figures bear this out with the number of technology M&A deals totalling US$208.44bn globally in Q1 2021, according to GlobalData. While the US holds top spot both in volume of deals (1034) and total value (US$140.61bn), Europe ranked next with 649 deals (US$44.49bn) with the UK continuing its reign as Europe’s biggest M&A market with 204 deals.

In particular, megadeals – those valued at US$5bn or more – soared in 2020 representing 59% of all global technology sector deal value in 2020, up from 47% in 2019, according to the latest edition of the EY Technology Global Capital Confidence Barometer.

This tech sector trend towards megadeals is backed up by EY’s CCB data, with 16% of tech sector respondents planning to pursue transformative deals valued at US$5bn or more in the near-term.

While technology deal activity “all but stopped at the beginning of 2020 after fluctuating between historic highs and lows, companies pivoted quickly and tech M&A exploded in the second half of the year”, says Barak Ravid, EY Global TMT Leader for Strategy and Transactions. 

M&A activity level for tech sector growth

Looking ahead to the future, technology executives are optimistic, with nearly half (47%) expecting profitability to fully rebound this year, according to CCB data, compared to 23% across all sectors, and with more than half (51%) planning to pursue M&A in the next year in order to sustain growth.

According to Ravid, M&A activity is increasingly becoming a key lever for growth as businesses look to recover.

“To position themselves for future revenue growth, tech companies are now adjusting their M&A strategy to focus more on a target’s business resilience, digital technology alignment and to gain market share through consolidation,” says Ravid.

However, with an increasingly competitive deal market and ongoing geopolitical tensions, the majority of tech execs expect to see more competition in the bidding process for assets over the next year, primarily from private capital.

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