Consulting firm Ernst & Young says that the global auto industry will experience 'modest' growth in 2012.

The firm predicts a further cooling of demand from many emerging markets and a continuation of weak sales from the majority of developed markets. This follows a modest expansion in the global automotive market in 2011 of around 3%, it says.

Ernst & Young also says that five themes that are likely to be critical for the auto sector in 2012:

  1. The cooling of emerging markets growth is likely to be an area of concern for the industry in 2012. However, long-term outlook remains positive.
  2. Developed automotive markets in Europe are likely to witness weak sales as a result of the sovereign debt crisis and the sales growth in the US is likely to remain uncertain. While these markets were forecast to recover to 2007 levels of production and sales by 2012, this is now likely to be delayed until the middle of the decade.
  3. The intensifying competition for a market share among OEMs globally is likely to create pressures on the supply chain. Emerging economies, especially China, are becoming the largest markets for a number of global OEMs. As a result, these OEMs face the challenge of not only defending their share in their home markets, but also leveraging the growth in emerging markets. The competitive environment will place operational and financial pressures on suppliers.
  4. The auto industry is expected to fully recover from the impact of the two natural disasters, the Japanese earthquake and the Thai floods, that caused severe vehicle and parts shortage in the past few months. These disasters led to a reduction in automotive inventories and offer companies a unique opportunity to evaluate production footprint and put in place processes to respond to future supply chain disruptions.
  5. The uncertainty of raw material prices is likely to be a key concern for suppliers and they need to look at various options from structuring pricing contracts to joint sourcing strategies.

Jeff Henning, Global Automotive Markets Leader for Ernst & Young, says: “2011 was another challenging year for the global automotive industry in both developed and emerging markets, with the crippling Thai floods and the Japanese earthquake coming at a time when demand was already being impacted by the economic downturn.

“Our Automotive Capital Confidence Barometer released late last year, however, identified growing confidence among automotive executives, with the vast majority of respondents having surprising faith in the resilience of the global economy. Executives also indicated maintaining or lowering levels of debt as an important theme, with a large proportion expecting their debt-to-capital ratio to decrease or remain the same this year.”

Ernst & Young also identified key trends from 2011 that are likely to continue to significantly impact the industry in 2012:

  • OEMs collaborate to develop alternate powertrains and low emission vehicles to comply with regulatory pressures, however demand is still sluggish.
  • Amid stable-to-positive earnings outlook, most automotive companies will look to deliver sustainable, profitable growth.
  • A focus on creating increased visibility of the overall health and resilience of supply chains will continue.
  • The marginal increase in IPOs in 2011 (over 2010) driven by activities of Chinese companies is likely to continue into 2012. While merger and acquisition (M&A) and private equity (PE) activity in the industry remained flat in 2011 compared to 2010, Ernst & Young’s October 2011 Capital Confidence Barometer study found a surprising appetite for deals among automotive executives in the next 12 months.