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The Global Auto Industry's Recovery Gains Traction

Original-Equipment Manufacturers and Component Makers Have Climbed Back From the Devastation of the Financial Crisis and Look Set to Maintain Their Momentum, Says BCG; But the Rising Tide Won't Lift All Boats

DETROIT, MI -- (Marketwired) -- 08/25/14 -- Few economic sectors have mounted a more impressive comeback from the ravages of the financial crisis than the automotive industry. Both 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, according to a new report by The Boston Consulting Group (BCG). The report, The 2014 Automotive Value Creators Report: A Comeback in the Making, is being released today.

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. These results surpass the median annual return of 21 percent for the 26 industries tracked by BCG. 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 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."

Important Sources of TSR: Focus and Scale
One of the report's most striking findings 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.

"Our findings also highlighted the importance of global scale," said Justin Rose, a BCG partner and a coauthor of the report. "It's no accident that from 2004 through 2013, the five largest-selling OEMs posted a 47 percent increase in combined unit sales. Global scale not only helps OEMs remain competitive on costs but also positions automakers to capture share in high-growth markets and solidify their competitive advantage."

Creating a Strategy for Sustainable Returns
To prepare a long-term value-creation strategy, OEMs and component makers should take into account all sources of TSR. "Global scale in itself is not sufficient to sustain performance, especially if growth comes at the expense of profitability," said Rakshita Agrawal, a BCG principal and a coauthor of the report. "Both OEMs and component makers must also expand margins."

Devising a long-term strategy will be an important challenge for industry executives. Analyzing a company's performance in terms of its ability to deliver sustainable value creation is what investors do every day. Armed with the right tools, there is no reason why executives can't develop an even better-informed perspective, given their intimate knowledge of their company's plans and industry trends. When executives do, they can stay one step ahead of investor expectations and consistently generate superior shareholder value for many years to come.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter and LinkedIn.

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