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Current outlook and challenges

COVID-19 has had a major impact on the whole automotive sector with manufacturers, suppliers and dealer networks all shutting down for two months.  Restarting production and kick starting consumer demand for new cars are the key near term challenges but this is overlaid with the longer term structural changes the sector had started to see and expected to happen.  Some of these key trends will only be accelerated by COVID-19.

We are starting to see evidence that owners of UK based manufacturing plants are now considering their longer term footprints with the UK being seen to be at risk given a potential lack of long term OEM future, especially given the Japanese / EU free trade agreement. The impact of Brexit also remains a concern on top of COVID-19.

We expect more challenges to impact the industry (both supply chain and retail) in the coming years and we believe the pace of change will now increase.  The change from internal combustion engines to hybrid and battery electric vehicles will have a major impact on Western European car production with major moves east being expected as Western Europe is currently behind the Far East technologically when referencing electric propulsion and battery technology. Recent government support packages in Germany and France have focussed upon EVs.

Similarly, we expect the retail market to change as consumer habits and demand change.  This includes a move more towards an online car buying experience, car sharing and leasing models which will reduce demand for new (and used) vehicles in the long run.  In the short term, however, car sharing models are likely to fall out of favour and car usage may increase due to fear of public transport usage.

Key trends across the sector right now

  • Reduced global demand for new vehicles
  • Change from diesel and petrol to hybrid/battery electric 
  • Sustainability- especially environmental impact of fossil fuelled engines
  • Consolidation and rationalisation of supplier base
  • Dealer footprint and consolidation 
  • Move to online/alternative retail and usage base models

Significant changes in powertrain and buying / usage behaviours are starting to impact on global demand and production volumes which filters through from manufacturers, the supply chain and dealer outlets.  We expect consolidation throughout the sector, from manufacturers to dealer groups will be prevalent in the near term


Stress and distress temperature rating

Automotive sector temperature assessment as at 1 June 2020, covering medium term history and outlook:

Graphic showing the Automotive sector stress and distress temperature rating

Case studies

Project Pool

Operational restructuring of a large UK car dealer group, looking at its dealer footprint and back office / support functions.  Identified over 20 sites for potential disposal or redevelopment while identifying a number of cost reduction and operational restructuring initiatives to make back office more efficient.

Project Lilford

Financial and operational restructuring of a Slovenian based auto company following an aggressive debt funded acquisition.  Restructuring resulted in local banks writing off over €200m while agreeing to provide new funding of €20m to match the same amount of customer support using untested local restructuring regulations.

Project Risedale

Financial restructuring of a supplier with two key customers.  Working for the key customer to understand the financial position and develop a long deliverable financial structure while developing contingency plans in case not all key stakeholders could be aligned.


Insights



KPMG UK's national sector teams

Contacts on this page are specific to KPMG Restructuring sector capability. Our Restructuring sector contacts also work as part of KPMG’s national sector teams that comprise members from across our wide range of practice disciplines, e.g. Deals, Consulting, Tax and Audit. To find out more about KPMG’s wider views in this sector, click here.

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