They expect the Internet to have great impact on the motor business and predict that a truly integrated, Web-enabled production and distribution system could knock $1,000 to $3,000 off the price of the average car.
The consultants report that automotive industry mergers, acquisitions and alliances in 1999 were worth $71.3 billion in a mix of small takeovers and such mega deals as Ford paying $6.45bn for Volvo Cars and Renault $5.4 billion to get a controlling stake in Nissan Motor. Already this year, the alliance of General Motors and Fiat, DaimlerChrysler buying into Mitsubishi Motors, Volvo offering $1 billion for Renault's RVI truck business, and Ford taking Land Rover over from BMW demonstrates continuing momentum for further rationalisation.
The deals are increasing in volume and in size, with the megadeals pushing up the average of disclosed automotive merger and acquisition transaction values to $275 million each in 1999, an increase of 80% over the previous year.
In particular, the value and volume of deals between component suppliers has increased substantially, topped by TRW buying LucasVarity for $6.5 billion.
Consequently, PWC is predicting that the number of tier one suppliers will drop from over 800 at present to only 30 in the medium to long term as vehicle assemblers rationalise platforms and increasingly want modules and sub-assembly systems rather than individual components.
The PriceWaterhouseCoopers report - Automotive Sector Insights, Analysis and Opinions on Merger and Acquisition Activity - notes also that the megamergers are reshaping the global automotive industry's approach to the car buyer.
The dealmaking frenzy is accelerating strong trends which are fundamentally changing how carmakers approach the consumer.
While rationalising to generate viable volumes and save costs, the carmakers are being driven also by larger customer- and cost-oriented trends, including Internet-enabled retailing.
"`Megamergers are taking the automotive industry by storm, with 12 deals over the $1 billion dollar threshold in 1999,'' says Jeffrey Sands, a director with PricewaterhouseSecurities in Detroit. "While the total number of deals declined 12% last year, their average disclosed value increased 80% to $275 million.
"Pressures to improve shareholder returns, rid themselves of excess capacity and use Internet-enabled technologies have converged to drive a fundamental consolidation and restructuring of the industry. These numbers reflect key trends that are expected to continue this year.''
Michael Burwell, leader of PriceWaterhouseCoopers' Transaction Services group, predicts that the role of the automotive supplier will be changed dramatically and forever by e-purchasing.
"Given the strength of the underlying trends, there will be more fundamental change in 2000 than in any year in the preceding decade,'' said Burwell. "The dealership system - in large part because of Internet-enabled retailing - will be under enormous pressure but, at least in the big U.S. market, will survive."
Much of the report focuses on how the Asian car makers have now become "the last frontier for the M&A wave that has already swept through the European and U.S. segments of the industry".
The PriceWaterhouseCoopers survey points to the following trends as particularly important for 2000 and beyond:
· In an attempt to get closer to consumers and command greater loyalty and share of wallet, vehicle manufacturers are expanding the definition of a 'car company' to cover all aspects of vehicle ownership. (Last year, the big carmakers used acquisitions to enter areas as diverse as roadside assistance and repair services, navigational devices, driver education, motorsports, recycling, and vehicle leasing and finance. Ford's $1.6 billion acquisition of Kwik-Fit auto repair centres and a surge of deal activity in roadside assistance services reflected this trend.)
· Increasingly, vehicle manufacturers are exploiting the value inherent in their brand. (With quality and reliability becoming less of a differentiator, vehicle manufacturers need to address the car buyer's emotional and convenience needs, as well as purely economic considerations, through strong branding campaigns.)
· As vehicle manufacturers focus more on brand and marketing management, as well as service and final assembly, they are shifting even more responsibility to Tier 1 suppliers, which are now taking on production of super modules and some assembly.