Production within the automotive sector is down by some 40 per cent in Europe and in excess of 50 per cent in North America. With impending factory closures (some potentially permanent), extended shut downs, short term working and the threat of insolvencies, there is still a lot of uncertainty in the market.
This trend will continue until around September this year when the market becomes easier to predict. 2010 will continue to see low levels of turnover; many people in the automotive industry believe that it will take until 2015 for volumes to recover to the levels of the past few years.
At present the key priority for the majority in the sector is “survival.” Those who survive this year will have focused internally on changes to be made to the business such as operational and efficiency improvements. These businesses will emerge much leaner and better placed to take advantage of good opportunities as conditions improve.
We expect distressed M&A to pick up later this year. A number of private equity firms have already approached us advising that they want to be in this market when the present uncertainty resides. There will be a number of companies that have to sell, some may face insolvency if they do not, and others will wish to dispose of non-core operations or simply raise cash. Stronger companies will also be looking for opportunities to invest.
How can BDO help?
We frequently undertake business and strategic reviews to highlight to the banks those businesses to back, whether a business needs to improve (and how it can do so), sell up or whether it faces winding up.
Suppliers want clarity on continuity of supply at the lowest cost. We can undertake supply chain risk projects to identify those suppliers most at risk and more importantly mitigate that risk before it crystallises into issues. In one project a team mitigated the financial risk to an OEM by in excess of $0.4bn.
Management appoint us to undertake business change projects. We would typically undertake a diagnostic check, identify the options available to the management team and implement the best solution. We would review three main areas; Financial, Management and Operational and would cover areas such as stability of operations, stakeholder management, management assessment, working capital improvement, refinancing and cost reduction.
Often we may facilitate strategic workshops to identify the future state of a business and how to get there. This may result in certain operations being considered no longer core. In these circumstances we work with management to achieve an optimal exit. This can be difficult to achieve where operations have been intertwined for a number of years.
Our Surviving 2009 Guide provides information that can help you to understand where your business might need assistance to navigate the downturn. For further advice on how we can help please contact Sid Hopper, or Kim Stubbs from the Automotive Team.