A hard road ahead
Just as impacts from the pandemic and a global semiconductor shortage seemed to be in the rearview mirror, new challenges and geopolitical conflict are extending production delays and supply chain disruption. Confirmed volume losses due to the global semiconductor shortage in 2021 were nearly 9.6 million units, and delivery times for semiconductors continue to lag. Sustained shocks in the European market are contributing to expectations of a further 1.8% drop in overall production in 2022, according to our analysis, as access to Russian and Ukrainian markets is stalled and fears are increasing around stagflation.
- OEMs
- Dealers/distributors
- Car rental companies
- Module and chassis supplier
- Powertrain
- Electronics
- Interior
- Exterior
- Mechanics
- Leather
- Steel
- Rubber
- Plastics
- Aluminium
- Glass
Source: PwC analysis
Driving growth in a distressed market
Shoring up disrupted supply chains means understanding how to operate within a heavily distressed market in which, according to a study of 500 global auto suppliers, more than half of all suppliers have distressed or at-risk financials. Further PwC analysis shows an upside scenario in which vehicle sales may return to 2019 levels only by the end of 2022, hastening the need for automakers and suppliers to plan a long-term, sustainable realignment of their businesses.
24%
44%
31%
21%
44%
35%
24%
47%
30%
35%
38%
27%
- 2017
- 2018
- 2019
- 2020
41%
33%
26%
31%
43%
26%
53%
27%
20%
53%
34%
13%
2021 by quarter
- Distressed: Financials and development show stress signals and a high attention for the turnaround needed
- Caution: Financials and development decreased and leads to a lower performance rating
- Healthy: KPIs show a healthy financial situation and development
Source: Capital IQ; PwC analysis
How can you create value amid disruption? Use a value bridge.
For companies surrounded by economic uncertainty mixed with a competitive surge of deals worldwide, creating value is a real challenge. A value bridge can be used to identify actions that can prevent value loss and preserve value in times of disruption, while also strengthening your company's competitive positioning to help it come out ahead.
Value levers
Enterprise value
Value creation
Full potential value
Source: PwC analysis
What levers can you pull to preserve value?
Repair working capital
As always, cash is king. The first step in preserving sector value is to focus on actions to stabilise liquidity and prevent value losses. Start with the creation of a cash office for short-term liquidity analysis and monitoring, rapid cost-cutting initiatives and the optimisation of working capital.
Rethink the supply ecosystem
Today’s automotive CEOs need to rethink their manufacturing footprint strategy to mitigate current risks regarding supply chains and industry evolutions, and to enable long-term sustainable growth. Possible actions might include reduction of product portfolio, plant shutdowns or a strategic joint venture with other players to help consolidate the overcapacity in the market.
Reconfigure operational excellence
With greater operational strength comes greater enterprise value. Operational value levers include the consistent implementation of longer-term restructuring measures, value chain M&A options and efficiency improvement programs, such as tax structuring and footprint optimisation.
Report with transparency
Stakeholder communication must not be overlooked in this volatile market. Translating specific outcomes into an integrated business plan for customers, suppliers, lenders and other stakeholders ensures value delivery and transparency.
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Harald Wimmer
Partner, Global Automotive Leader, and Global Smart Mobility Co-Leader, PwC Germany
