OEMS, suppliers and dealerships are facing a period of significant change with their own unique challenges.
This is a result of both changing customer demand (e.g. accelerating adoption of electric vehicles; and growing online and direct to consumer sales models) and the impact of Covid-19. This has forced structural changes and caused the industry to re-assess their reliance on global supply chain partners for increasingly important components such as semi-conductors and batteries.
Our dedicated team of experts in the automotive sector has a track record of helping clients navigate challenging times, through periods of changing regulations, consumer tastes, supply and demand fluctuations, Brexit preparedness and most recently the disruption from Covid-19. During this period of rapid transformation in the automotive sector, you can read our latest thinking on strategic reshaping and dealing with non-core assets here.
Latest Financial Advisory Insights
Strategic Considerations for the Automotive Sector
All automotive companies are facing a number of simultaneous challenges, including:
- the need to shift towards software technologies to remain relevant now and in the future;
- shifting consumer demand towards electric; and reduced ICE volumes (particularly diesel);
- structural changes to the supply chain and clear supply chain risks highlighted from recent shortages and Covid-19; and
- regulatory change, particularly focused on the carbon neutral agenda.
Profit margins remain under pressure (particularly in the UK) at a time when there is a clear need for substantial investment to fund the transformation and sustainable profit improvements many in the auto sector need.
We see a clear need for many in the automotive sector to challenge their immediate strategy to create sustainable value for their core operations.
Key Sector Issues
Significant disruptive forces continue to impact OEMs. Many are embarking on a strategic journey towards a carbon neutral EV/AV led business, with differentiated software and connected offerings, while also navigating a varied regulatory outlook across the globe.
The increased frequency of supply chain issues has impacted the majority of OEMS. These issues range from semiconductor shortages (which is expected to continue into 2022) to polymers shortages from extreme weather in the US, which is leading to a re-assessment of supply chain sourcing and a new understanding of where risks lie.
Carbon emission quotas will likely result in increased costs for OEMs and the wider supply chain, contributing to reduced margins & cash flow pressures.
The focus for medium and heavy Commercial vehicles is sustainability as purchasers look to decarbonise their fleet.
Many suppliers have faced and continue to face disruption from OEM shutdowns and semiconductor shortages caused by the Covid-19 pandemic. This has resulted in production stoppages around the globe, placing strain on cash and trading.
Transformation in the traditional supply chain, OEM footprint rationalisation, increased regulation and one-off events such as Brexit have contributed to a number of Tier 1 suppliers relocating production away from the UK & EU.
The accelerated shift to electric will lead to a downward trajectory for component suppliers purely operating in the ICE market and will lead to a need for them to diversify.
To protect against supply issues, many OEMs have sought to increase in-house and near shore critical future component manufacturing (e.g. batteries).
Government, OEM and vehicle funder forbearance supported dealerships during lockdown periods. Dealers that have a strong online capability and made decisive and permanent cost reductions have performed the best. Repayment of deferred liabilities may lead to liquidity and/or covenant issues.
Supply challenges continue to impact new vehicle registrations, leading to material wholesale used vehicle price rises. Dealers are benefitting from strong margins on used, but it is unclear how long the uptick will last.
New ownership models, autonomous mobility services and a move to an agency model will impact traditional dealership business models.
Rental businesses are facing an ongoing contraction in demand. New vehicle supply is impacting BAU fleet management cycles (increase in summer, decrease in winter).
How We Support You
Capital, M&A and Transaction Services
We were engaged by a high-performance automotive group facing a liquidity shortfall following a downturn in trading as a result of COVID-19. We provided a robust challenge and review of the short-term and medium-term cash flow forecast (including various sensitivity scenarios) to allow us to identify the quantum and timing of future liquidity requirements. This informed our advice to the client on its financing options and ultimately the successful equity injection.
- We worked alongside the client and its legal advisors to advise the client on their cash flow forecast to identify their liquidity requirements and funding options.
- Engaged with lenders and bondholders and provided the Board with impartial 3rd party advice as it parallel tracked multiple financing options to resolve the short-term funding need.
- Secured a £150m equity injection from an existing shareholder, solving the group’s immediate liquidity crisis and setting up a stable platform for a broader restructuring of the group over the following six months.
Following the loss of a major customer, we were engaged by a UK based, Japanese owned automotive manufacturer to perform a review of opportunities to secure new customers, evaluate the overall market, competitiveness and sustainability of the business.
- Our initial feasibility study resulted in a cross border consultation and contingency planning exercise to ensure value maximization for the Japanese parent.
- We helped Management identify and confirm the opportunities for the business to pursue new customers in order to maintain a viable business in the UK and outlined the further planning requirements required to implement a successful transition or closure in the event that new business could not be obtained.
- We subsequently supported the client to develop and implement a solvent exit of their UK operations, including project management of stakeholder communication, employee consultation processes and risk management.
Details of the entity providing services, legal and regulatory information in respect of the Teneo entity are also included in our engagement letters.
Teneo Financial Advisory (DIFC) Limited is authorised and regulated by the Dubai Financial Services Authority for the provision of Advising on Financial Products or Credit and Arranging Credit or Deals in Investment services
Specific information relating to our regulated entities which provide services to clients is detailed below:
|Registered Name||Legal Form||Registration Location and Reference||Registered Office||Data Protection||Regulator(s)||Professional Indemnity Insurance|
|Teneo Financial Advisory Limited||Limited Company||England & Wales, 13192958||5th Floor, 6 More London Place, London, SE1 2DA||UK - ZA920639||The Institute of Chartered Accountants in England and Wales (“ICAEW”) C008873136. All insolvency practitioners are licenced by the ICAEW. ICAEW Designated Professional Body licence for a range of investment business activities.||Details of the professional indemnity insurer can be provided on request.|
|Teneo Securities LLC||Limited Liability Company||USA - Delaware||280 Park Avenue, 4th Floor, New York, NY 10017||N/A||Financial Industry Regulatory Authority (FINRA) #151256. Securities and Exchange Commission (SEC).||Details of the professional indemnity insurer can be provided on request.|
Teneo Securities LLC’s Business Continuity Planning
Teneo Securities LLC has developed a Business Continuity Plan (“BCP”) on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with this information on our BCP.
The Firm has developed and installed a BCP in the case of any business disruption that causes the Firm to have limited or no communications with its employees or customers. Our plan anticipates two types of business disruptions, internal disruptions which affect only our Firm’s ability to do business (such as a fire in our building) and external disruptions that prevent the operation of securities markets or other firms (such as natural disasters or acts of war).
The Firm intends to stay in business during both internal and external disruptions due to the fact that the Firm employees can conduct Firm related business from alternate off-site physical locations and the Firm maintains an alternate location for the maintenance of its books and records. We anticipate that the Firm will recover from internal business disruptions within 24-48 hours. An outage due to an external business disruption may be longer and is beyond the control of the Firm. However, the Firm will endeavor to resume business as soon as it is possible for the Firm to establish business operations from alternate off-site physical locations.
The Firm’s BCP specifically addresses the following areas related to Firm operations:
- Data back-up and recovery (hard copy and electronic);
- All mission critical systems;
- Procedures to test and determine the Firm’s ability to do business (i.e., financial and operational assessments);
- Alternate communications between customers and the Firm;
- Alternate communications between the Firm and its employees;
- Alternate physical location of employees;
- Critical business constituent, bank, and counter-party impact;
- Regulatory reporting; and
- Communications with regulators.
If you have questions about our business continuity planning, you can contact us (212) 886-1600.