Despite facing occasional recessions, automotive OEMs and suppliers have traditionally based their strategies on a growing market, building research and production capacity and steadily increasing utilization and process efficiency.

In recent years, however, the industry has been in the midst of a dramatic, all-encompassing transformation, whilst also having to cope with severe supply chain disruption.
In this article KPMG international automotive restructuring professionals provide a snapshot of the sector's present state and future prospects.

The current slowdown in the automotive industry is due to several factors: a shift to electric vehicles; changing consumer preferences for car sharing and subscription models; supply chain disruption; the global effects of COVID-19 and/or other more regional crises; increasing energy and raw material prices; limited raw material and workforce availability.


To compete effectively, automotive players should aim to adapt to the following concurrent phenomena: 

1. Transition to EV: reduced employment numbers and lower market value for ICE suppliers

  • A fundamental change in proportion of different production inputs.
  • Electric drivetrain replaces about 1,400 drive system components and requires ~65% less assembly time.
  • Component changes account for up to 30% of traditional vehicle value.
  • This is a catalyst for change in various business models, forcing certain ICE related players to either restructure, reinvent, sell (parts of) their business, or wind-down.

2. Slowly recovering demand following a period of uncertainty:

  • Sales forecasts for the next few years show an upswing of 11% between 2023 and 2025, resulting from the order backlog and recent accumulated demand, especially during COVID-19.
  • Supply shortages e.g., in semi-conductors and other products in the wake of COVID-19 led to postponements of production and deliveries globally – and a failure to fulfil customer demand
  • Current global, political, social and economic conditions have caused persistent and increasing uncertainty with fear of a recession.
Global production forecast

Forecasted volume growth is mainly driven by rising Asian production, while value creation is expected to shift to certain existing market participants and new players.

3. Incoming peak debt due: threat of financial distress for several suppliers, with ICE related companies suffering the most.

  • Continuous pressure on margins and upcoming debt repayments pose an existential threat to ever more suppliers 
  • Most supplier debt is payable within 2 years and, as cash reserves dwindle, an over-reliance on short-term debt will put immediate pressure on near-term profit generation to fund repayment
  • Higher interest rates will likely further erode profit levels
  • For many companies, COVID-19 repercussions mean recent years' balance sheets offer limited financing potential. 
  • Suppliers face upcoming deadlock as banks and investors shun unattractive automotive business models. 
  • Alternative financing sources are needed to preserve supply chain reliability. 

4. Changes in customer base and behavior as mobility-as-a-service (MaaS) and declining purchasing power drive down new car sales.

  • Growth in MaaS offerings and rising demand for ride-hailing, car-sharing, taxis and integrated public transport services (especially in urban areas), along with increasing environmental awareness, is reducing new car sales
  • Increasing restrictions on car use is reducing the appeal of car ownership in urban conurbations and ushering in MaaS. For example, in Jakarta (Indonesia), drivers with even and odd number plates must alternate from day-to-day to reduce congestion.
  • From a global perspective, the main buyer groups for new cars differ from region to region.

i. APAC: China's main target group is 25-34 years old, whereas in South Korea, it's the 45-54 year-olds.

ii. Americas: customers aged between 25-44 constitute 61 percent of the market.  

iii. EU: By 2030, the main group of buyers (aged 45-64 years) will decline.

  • Average purchasing power in APAC, Americas and EU is improving slightly after a 3-year COVID-19-driven fall, further aided by recent interest rates rises that boost purchasing power. 
  • A look at the average price of a new car relative to household disposable income, reveals further differences. 

i. In Japan, average disposable household income for 2022 was $32k compared to the average new car price of $25k (78 percent).   

ii. In the US, average household income is $62k but the average price of a new car is around $46k (74 percent). 

iii. The household income in Germany is $44k in relation to the average new car price of $47k (107 percent). 

5. Inflation, other macroeconomic factors and geopolitics impacts a global industry like automotive:


  • General wages fail to keep pace with inflation, which also undermines savings, further weakening demand for new vehicles (especially more expensive models), with subsequent impact along the supply chain.

The automotive supply chain will continue to be distributed during this transformation. Suppliers are facing inflation from raw materials, labor, and logistics coupled with increased investment for EV transition, vehicle volume uncertainty, and increased competition from new players in the market.

Lenny LaRocca
Global Head of Deal Advisory and Strategy Automotive

Other macroeconomic factors and geopolitics

  • Some countries have launched economic programs including the EU Green Deal and US Inflation Reduction Act. Such initiatives are usually designed to support, promote and protect their own economic area. Due to the high, global value chain interdependence of automotive companies, the programs may have different impacts in different regions. 

Further impacts on automotive markets and players

  • New entrants from technology and systems place additional market pressure and create new areas of value creation that traditional suppliers may struggle to replicate.
  • Chinese OEMs are expected to expand their role as global automotive players, threatening traditional manufacturers. 
  • Beside the incoming debt peak, many suppliers do not generate enough cash/capital to independently change their business model and are unable to lend money.
  • Small- and mid-cap suppliers are not sufficiently diversified to cope with the rapid decline in their value creation.

It's time for a comprehensive restructuring 

  • The automotive industry is changing, not for the first time, but on an unprecedented scale. 
  • Although the sector has traditionally built-up capacity and continually improved efficiency, it is now experiencing decline and will shrink in certain areas.
  • To remain relevant, suppliers and OEMs must change parts of their business model.
  • TIER-1 suppliers and OEMs must somehow determine which of their suppliers will remain in future supply chains. 
  • A sole financial restructuring is no longer a valid option for automotive companies, with a need for operational restructuring and business model change, requiring new skills and knowledge. 
  • The automotive industry must manage financing challenges, working with trade credit insurers and their own suppliers as well as other new stakeholders. 
  • Due to the importance of the automotive industry to many national economies, social and political discussions are likely, to determine levels of support.
Capacity and utilization Global
Capacity and utilization Americas
Capacity and utilization APAC
Capacity and utilization Europe

Even before COVID-19, where production volumes were at their highest, capacity was underutilized. Forecasts suggest that underutilization will persist at least in the medium term.


In the long run, the automotive industry is set to achieve a new equilibrium and stakeholders should adjust accordingly. However, this process is likely to take several years for most market players and economic regions.

In an environment characterized by transformation and/or stress/distress, not all management teams have the capabilities to adapt to the new normal. In our experience, transformation requires appropriate management attention, resources and discipline as well as revolving contingency planning.

Experienced KPMG Automotive Restructuring professionals have the core operational and financial competencies and capacities to proactively assist in these turbulent times.


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