Auto sector in need of greater economic stimulus

An analysis by Deloitte says that with consumer confidence at an all time low, the automotive industry is struggling to see the light at the end of the global economic downturn. And while the industry is expected to benefit from the $50 billion injection, the funds are just a small percentage of the estimated $3.6 trillion in economic stimulus packages committed by various governments around the world. “What the automotive industry most needs is to have customers buy again,” says Hans Roehm (pictured), 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.” Mike Woodward, automotive partner in Deloitte’s UK manufacturing practice, said: “There has been a lot of discussion around whether a scrappage allowance might soon be introduced in the UK. It has certainly worked well in both France and Germany. New car sales in Germany spiked 22% last month, bolstered partly due to the €2,500 subsidy for people who turn in their old car and buy a new one. Based on this evidence it would seem that a similar scheme could also have a beneficial affect in the UK and get car sales rising again.” In the UK, the government recently announced £2.3 billion of funding to provide loan guarantees or loans (in limited instances) to support the ailing UK automotive industry under its Automotive Assistance Programme (AAP). The AAP aims to help ease the financing constraints UK auto makers are currently facing given the lack of liquidity and heightened lending requirements in the banking sector. The hope is that with these financial constraints eased, the automotive industry will be able to develop lower carbon transport and other environmental and energy efficiencies, which should assist them in becoming more competitive and successful in the global market. Woodward added: “One of the positive aspects of the AAP is that manufacturers of cars, commercial vehicles, mobile construction equipment and the suppliers of components and parts to manufacturers are all eligible within the scheme. This shows that the AAP is meant to look after not only Original Equipment Manufacturers (OEMs) but also the independent suppliers to these companies. “In addition to the AAP, the Bank of England recently announced their Asset Purchase Facility, where they would purchase up to £50 billion of high-quality assets. The details of the program are still emerging but it will be interesting to see if asset backed securities of auto loans make it onto the list of “eligible assets”. If so, this would provide the financing arms of many of the bigger OEMs with another balance sheet management tool.” The Deloitte analysis reveals that in nearly all of the 18 markets covered, the economic stimulus effort 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, UK and US. In the UK, Deloitte itself has launched a new employee company car scheme so that all its 12,000 employees have access to affordable, environmentally friendly vehicles.