Consultant company says global automakers need to spend more in the next 10 years image

Just judging by the new cars shown during the first important motor show of the year – NAIAS – the auto industry, especially in the US is in pretty good shape. Still, analysts and consultants say the mid term and long-term horizons are more complicated.

According to a report from consultants McKinsey, the global automotive industry’s current profits have exceeded pre-crisis levels by 34 % but automakers face four major challenges, which will require investment of more than $3 trillion over the next 10 years.

McKinsey describes these challenges as “complexity and cost pressure”, which includes the need to invest in a wide range of engines to meet tightening fuel consumption rules, “diverging markets”, as third world buyers want cars, “evolving demands” like internet connectivity, and “shifting industry landscape”, which includes emerging competition from Chinese manufacturers and the need to bailout some of the financial basket cases in Europe.

McKinsey senior partner Hans-Werner Kaas said because of the huge investments required, some automakers won’t have the resources to stay competitive.

“Those that will need to focus their efforts on implementing a tailored strategy to manage four key drivers: growth, margins, capital productivity, and market expectations,” Kaas said, declining to identify the strugglers.

“Profit pools are shifting dramatically,” the report said. Emerging markets and North America will see the fast growth in profit pools, while Europe, Japan and South Korea will not be as profitable. Auto industry profits will increase by approximately 50 % by 2020, the report said.

Possible threats to future profits include regulations in China, which might batter profit margins, and the costs for electric and other alternative vehicles, as countries like the US force fuel consumption up to meet the 2025 goal of 54.5 miles per gallon (4.31 l/100 km).