Over the last couple of years, the automotive industry has made an impressive comeback. According to a new report, The 2014 Automotive Value Creators Report: A Comeback in the Making, by The Boston Consulting Group (BCG), Original-equipment manufacturers (OEMs) and component makers delivered five-year median annual returns that were well in excess of the median annual return for 26 industries.
“The automotive sector has enjoyed a good run, but sustaining that standout performance will be a challenge,” said Xavier Mosquet, a BCG senior partner and a coauthor of the report. “OEMs and component makers will have to prioritize innovation to meet the needs of consumers.”
OEMs produced a median annual total shareholder return (TSR) of 29 percent from 2009 through 2013, while component makers posted a median annual TSR of 33 percent. The automotive industry’s recent performance represents an impressive recovery from the depths of the 2008 financial crisis, when the big three U.S. automakers alone posted nearly $75 billion in losses and unit sales plunged worldwide. The recovery has also spurred capital investment by OEMs and suppliers.
“We experienced a significant growth in capital investment in plant expansion and greenfield facilities,” said Brian Gallagher, Director of Marketing for O’Neal, Inc., an integrated design and construction firm based in Greenville, SC. “OEM’s are investing in new and expanded assembly plants, and the tier 1 and tier 2 suppliers are adding production capacity.”
An interesting finding is that OEMs’ country or regional focus influenced how they created value. OEMs that concentrated on emerging markets produced a median annual TSR that ranged from 36 to 49 percent, creating value primarily through a combination of margin improvement and sales growth. Automakers that focused globally on developed markets posted lower median annual returns that ranged from 23 to 35 percent, creating value in large part by expanding their profit margins, rather than increasing sales, and returning cash to shareholders through dividends and share repurchases.
The global automotive market is also experiencing a shift as more OEMs are investing in North America. Mexico has seen a steady increase in automotive investments. According to Fausto Cuevas, general director of AMIA, Mexico’s auto makers association, Mexico will reach 3.2 million vehicles produced this year. Mexico in recent years has been exporting up to 83% of its production.
“Mexico is an increasingly important market for the automotive industry,” said Gallagher. “O’Neal recently formed a partnership with Beck Group to offer design and construction services for automotive manufacturers in Mexico.
Overall, the automotive manufacturing comeback in is having a positive impact on many industries. A copy of the report can be downloaded at www.bcgperspectives.com.
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