Range extenders can extend the driving range for an electric vehicle ...

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The level of M&A activity in the
automotive sector has been driven in
large part by the consolidation of excess
capacity due to the global recession and
the growth of emerging markets.
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to more consumers due to reduced
purchase price thresholds.
The techniques (in addition to lower labor
rates) that generate these cost advantages
are not only helping to expand unit sales,
but are also generating advantages that
can be exported into developed and more
mature markets. This is what will drive the
export function for China and India.
AI: What are some of the challenges
facing the automotive industry in these
countries?
Fesenmeyer: China needs to maintain
strong economic growth to continue
increasing jobs, which will then lead to
the expansion of its domestic automotive
ownership. India also has a strong emerging
middle class that wants more mobility.
Many wish to trade up from two-wheeled
vehicles to automobiles. India’s financial
sector has developed a variety of funding
programs for automotive purchasers, but
continued success is dependent upon
sustained economic growth and supportive
taxation programs.
Infrastructure issues are also a big
concern. China’s developed road system
has led to automotive traffic clogging the
larger cities and pollution is becoming a
primary concern.
India needs better roads throughout its
geography and a public/private funding
mechanism that encourages traffic on the
roads they build. India’s domestic markets
and its growing export business have
placed a strain on qualified workers.
AI: Why is there increased M&A
activity in these regions? Will we
see more companies from the West
entering into alliances with Asian
companies in the auto sector?
Fesenmeyer: This is where the growth
is taking shape. Logistical cost can be an
expensive element of an automobile’s
total cost, especially at the low end of the
market. It makes sense to have suppliers and
producers located in close proximity to each
other for overall coordination and economic
efficiency. Collaboration between suppliers
and manufacturers is vital to generate the
innovation necessary for cost reductions
required in these developing markets.
Some of this can be accomplished
with alliance strategies, while M&A will be
important for those that need to move
rapidly. M&A provides the most rapid
solution for exiting from undesirable
situations and entering into more favorable
opportunities. To adapt to the changes
underway in the automotive industry —in
order to compete in this sector —M&A has
to be a fundamental component to any
business strategy.
AI: Tell us about the growth prospects
in Eastern Europe? What are some
of the advantages of doing business
there for automotive companies?
Fesenmeyer: Cost and location are
the two major advantages for Eastern
European automotive operations. Demand
has been negatively impacted due to
the financial crisis, but the relative cost
advantages between Eastern Europe and
Western Europe have actually increased.
Raw material costs are escalating due to
the increasing domestic demands in China
and India. Costs have to come down in
order for European manufacturers to remain
globally competitive. Eastern European
countries have moved to address other
competitive problems such as qualified
workers and logistical bottlenecks. They
have also adopted tax and tariff strategies
to encourage more investment by foreign
producers.
AI: What are some of the challenges
facing automotive companies in
Eastern Europe?
Fesenmeyer: Stability of government
is critical before investing in an automotive
Automotive Industries 69
Scott Eisenberg, partner
with IMAP’s office in
Detroit, Michigan.
plant. The global financial crisis has placed
an even greater strain on governments
in this emerging region, resulting in
reduced confidence of foreign investors
to predict future political landscapes and
operating environments. While leaders
of governments have turned over pretty
rapidly in Eastern European countries
over the last two years, it does not appear
to have undermined the long-term desire
of the populations to support private
investment, which is encouraging to
foreign direct investment (FDI).
AI: What do you think will fuel
the growth in the market for hybrid
vehicles? How big will the growth in
this sector be and how can automotive
companies take advantage of this
potential?
Fesenmeyer: I think government
subsidies will be the primary driver in this
segment in the near future. Even with the
reshaping of the industry that is underway,
the production and operating costs are still
much higher for hybrid vehicles than the
costs are for the legacy models that they
are intended to replace.
Tax policies may stimulate consumption
more in the hybrid direction. In my opinion,
it will take breakthroughs in battery
technologies and localized strategies for
supporting fuel replenishment to make this
happen rapidly.
Because our markets are now so globally
intertwined, it is not easy to accomplish
such fundamental reshaping of an industry
without a strategy to absorb the value destruction
that will occur for those countries
that adopt modern environmental policies.
It will likely be accomplished through
dedicated efforts to stimulate ingenuity at
smaller scale levels rather than rapid government-mandated
movements, which will
probably be more costly than citizens are
willing to support. AI