The rising cost of manufacturing automobiles has private equity firms steering clear of component deals and heading in a different direction, according to a report by PricewaterhouseCoopers. The study found that p.e. participation in auto component deals has dropped dramatically from 61% of the total market in 2004 to 30% last year and 15% so far in 2006. Instead, says PwC, p.e. funds are looking for “more defensible positions,” which “traditionally generate reliable cash flows.” The shift has led to the re-emergence of trade buyers, those already in the industry looking to acquire additional related properties. “Vehicle manufacturers see vehicle design, manufacturing and distribution as core functions, but all other activities are up for sale at the right price,” explains Paul Elie, PwC’s automotive transactions services head. “In this new climate, private equity buyers have gone from being viewed with caution to being the buyers of choice.” While private equity has been gearing up for its new role in the auto industry, hedge funds are being driven to the sector by the distress of struggling components companies. “Hedge funds have already spurred debt and equity write-offs in some automatic firms,” another automotive leader at PwC said in a statement. “Judging by their actions in other industries, we could see them drive more radical management changes by bringing in turnaround specialists or even forcing the break-up of some businesses.”
