US Auto, Defense Industries Face Differing Prospects
Facing a sluggish domestic market, the US automobile industry’s “Big 3” - General Motors, Ford and Chrysler - are being forced to seek profits in new markets. And while this year will certainly be challenging, there are opportunities that could prove to be significant boons for the industry, according to Deloitte’s 2008 Industry Outlook: A Look Around the Corner.
The industry has already seen tremendous growth in the emerging markets of Brazil, Russia, India and China. Their seemingly unlimited potential could offset the anticipated flat-to-slow growth in the U.S. and European markets.
While US manufacturers have been criticized for decades for their slow response to environmental concerns, fundamental shifts in public opinion concerning the environment seem to have occurred in the past several years, Deloitte says. “Going green” and environmental sustainability are issues that are here to stay and the specter of new legislative mandates resulting from the 2008 elections should provide impetus for the industry to start developing common solutions to fuel economy and other environmental issues.”
New alliances within the industry (for example, to develop hybrid technology) may play a key role in the Big 3’s response to growing environmental concerns. Cooperation between OEMs, as well as between OEMs and suppliers, will become an increasingly common and necessary industry dynamic.
In contrast, the aerospace and defense industry continues to benefit from significant revenue growth from its government contracts.
“Increased spending — fueled by the U.S. military presence in the Middle East and continuing concerns about global terrorism — has been the key driver of revenue and earnings growth in the defense sector over the last five years.”
The industry will continue to benefit from more “big brother” like activities: “A&D customers will also focus on investments such as counter-terrorism, surveillance, and data mining,” Deloite says.
Aerospace and defense contractors’ service business is expected to grow from its traditional 15 percent of total revenues to as much as 25 percent with most of this revenue resulting from homeland security and counter-terrorism initiatives.”
Competition from European firms is expected to increase in 2008, and the report suggests American firms will be forced to continue to place a high-end value on innovation as result.
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