Comparison to other markets
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| | | Q4 performance (%) | 1 year performance (%) | 3 years performance (%) | | | |
| Global Vehicle Manufacturers, USD | -5.4 | 1.3 | 52.8 | | | |
| Global Parts Suppliers, USD | -6.0 | 7 | 37.6 | | |
| Global U.S. Retailers, USD | -13.5 | -33.5 | -7.3 | | |
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| Deutsche Borse, USD | 5.8 | 36.4 | 104.6 | | |
| FTSE 100, USD | -2.6 | 8.8 | 53.5 | | | |
| Dow Jones, USD | -4.5 | 6.4 | 23 | | |
| S&P 500, USD | -3.3 | 5.5 | 28.2 | | | |
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Composition of the PricewaterhouseCoopers automotive shareholder value indices
PricewaterhouseCoopers has devised separate Automotive Shareholder Value Indices (SVIs) for Global vehicle manufacturers, Global parts suppliers, and U.S. retailers. These have been reported in Automotive News on a quarterly basis since January 2000.
The SVIs have been established by measuring actual growth in the value of a portfolio of investments with the assumption that all cash distributions or subscriptions are reinvested in additional units of equity. Companies in bankruptcy proceedings or with negative results are excluded from award eligibility. Portfolios have been constructed in a common currency for companies listed throughout the periods on a global basis for:
- 14 of the largest Global vehicle manufacturers by revenue
- 35 Global parts suppliers with group sales over $900 million and at least 50 percent automotive sales content, and
- 7 U.S. retailers with sales over $2 billion
The SVIs represent the average return of each portfolio weighted according to the market capitalization of the common constituents.
The SVIs show that the following returns have been delivered by the three different segments of the market over three years ended December 31, 2007.
Comparison with other markets
Three-year Shareholder Value Indices return for global automakers was 52.8% and global suppliers 37.6%. Near-term results have been less positive. The global OEM SHV index gained only 1.3% over 1 year, and fell 5.4% in 2007 Q4; the global supplier SHV index gained 7.0% in 2007 and decreased to 6.0% in Q4. In 2007 Q4, a number of U.S. and Asian OEMs, suppliers, and retailers saw shareholder value diminish, due to jitters about the U.S. economic outlook and a weak U.S. currency.
The auto industry faces a large number of change agents -- high growth emerging markets, rising raw material costs, currency fluctuations, increasing competitive intensity, and U.S. market uncertainty, ultimately impacting shareholder value.
Globally, shareholder value trends over one- and three-years show that companies are increasingly being valued by: 1) quality of their "portfolio"; and 2) progress and current status regarding structural shifts in a global industry that is in constant restructuring.
Similarly, future success in shareholder value will be driven by the quality and diversification of a company's portfolio. Companies that are well-positioned in emerging markets, advancing in high-growth technologies and geographically diverse will likely outperform its competitors.
Sector outlook
PwC's Automotive Institute forecasts U.S. light vehicle sales to fall to 15.6 million units in 2008, assuming weaker economic performance, but not a recession. This results in a projected North American light vehicle assembly figure of 14.7 million units, the lowest in 15 years. If the U.S. economy falls into an outright recession, those figures would have downside risk.
Globally, the outlook for the automotive industry is more positive. PwC's Automotive Institute expects global light vehicle production to raise from 68.6 million units in 2007 to 80.1 million units in 2012, a healthy Compound Annual Growth Rate (CAGR) of 3.2%. Emerging market production alone is expected to grow by over 10 million units, from 24.4 million in 2007 to 34.7 million in 2012. Stated another way, emerging markets will likely grow by 43% between 2007 and 2012, which represents 90% of total global anticipated light vehicle production growth. This creates significant potential for shareholder value creation for automotive companies that are positioned to benefit from this explosion of growth taking place in emerging markets.
In summary, the demands on auto companies are constant and never-ending. In order to be rewarded in terms of shareholder value, companies need to demonstrate constant progress on cost-cutting and market growth; headway against the structural challenges facing the industry; ability to satisfy increasing legislative demands; and successfully differentiating themselves in an increasingly competitive global market.