The auto industry is primed for growth in M&A in the next few years according to consultants at PwC.

PwC says that automotive mergers and acquisitions (M&A) activity was strong in the first half of 2011 and then tapered off in the second half of the year following Europe's sovereign debt crisis and the natural disasters in Japan and Thailand.

According to PwC's analysis, in 2011, 594 automotive deals were completed with a disclosed value of USD45bn, reflecting an increase compared to 2010, which had 520 completed deals totalling a disclosed value of USD25bn.

The European debt crisis and reduction in economic forecasts, coupled with changes in the financial regulatory environment, also increased the global cost and availability of capital, PwC says. Capital requirements imposed by the US and European stress tests further reduced the availability of capital that financial institutions had to lend. 

As a result, “automotive deal activity was not as robust as in the first half of 2011”.

Following a boom of economic growth in 2008 and 2009, China and India were faced with escalating inflation rates in 2011, PwC adds. 

To combat this, both countries adopted measures to drain liquidity from their markets and increase interest rates.  As a result, economic growth and automotive sales in these two large markets slowed considerably. Without the anticipated rapid growth from these two markets, declines in Europe and other markets significantly lowered expectations for recovery of global auto production and sales volumes, which directly impacted the attractiveness of automotive sector M&A.

"The auto industry is primed for growth in M&A in the next few years," said Paul Elie, U.S. automotive transaction services leader. "Since the second half of 2011, dealmakers have approached the market with increased conservatism given the looming economic challenges in the EU and uncertainty in the regulatory environment.  As soon as the macroeconomic environment improves, we will likely see a wave of pent-up demand resulting in increased deal activity."