November 10, 2014

PricewaterhouseCoopers: Auto mergers at a 7-year high

According to a new study, the rate of mergers in the global auto industry has reached a seven-year high. In the first half of 2014, 250 deals in the industry, valued at $27.5 billion, marked a 13 percent increase over last year, which saw 222 deals. The figures, released by professional services network PricewaterhouseCoopers (PwC), are illustrative of an industry realigning its long-term strategies as economic recovery settles into Detroit. 

Both manufacturers and suppliers have witnessed the shift toward consolidation, which comes at a time when global auto sales are projected to rise nearly 40 percent by 2020. That number currently stands at 83 million units and may grow to as many as 109 million. With a new atmosphere of competition following the recession, corporations are seizing the opportunity to expand by acquiring struggling businesses. That change is expected to happen domestically and abroad. 

"As manufactures move to global platforms and global production, their suppliers are forced to consolidate. Small suppliers are going to struggle when it comes to supplying parts on 1 million unit platforms," Jeff Zaleski, a deals partner at PwC, told the Detroit Free Press. "There is still a lot of consolidation left to be done in China and India."

2007 was a watershed year for mergers and acquisition, during which 333 deals took place during a six month period. With the U.S. economy teetering on the brink and an auto industry in duress, many struggling operations were absorbed into corporations. 

2014 has been defined not just by a rise in general mergers but also in the prominence of "mega-deals," or mergers that Zaleski describes as transformative. Some cases of acquisition may redraw power dynamics moving forward into a new era of automotive manufacturing.