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Auto executives cooling toward acquisitions, study says


DETROIT -- Automotive industry executives are less interested in pursuing acquisitions than they were a year ago and are favoring deals that minimize political or technology risks, according to a new survey by Ernst and Young.

About 52 percent of senior auto industry executives surveyed said they planned to pursue an acquisition within the next 12 months, down from 59 percent in October 2015 and 70 percent in April 2015, Ernst and Young found. The consulting and accounting firm said it surveyed more than 100 senior auto industry executives for its twice yearly Automotive Capital Confidence Barometer.

"They are trying to spread out and minimize their risk," Mark Short, global automotive and transportation industry leader for Ernst and Young's transaction advisory services, told Reuters. Those risks can be political, economic and technological, he said.

Some recent high profile automotive deals, including Toyota Motor Corp.'s investment in Uber Technologies Inc., reflect automakers' efforts to get a foothold in new technology or business models, such as self-driving cars and ride hailing. 

The United States, the UK, Germany, India and Brazil are the top countries targeted for investment among auto executives surveyed, Ernst and Young found.

"For the first time in a very, very long time China's not in our top five market destinations for deals," Short said.

Automakers and suppliers poured money into China as it grew to become the world's largest auto market by vehicle sales. Now, there is concern that the Chinese economy may be slowing.

In Brazil, vehicle sales are slumping with the rest of the economy, but assets "are very, very cheap," Short said.

Companies are doing "a lot of scenario planning" for the possibility that British voters will opt to exit the European Union, Short said. So far, Ernst and Young has not seen potential deals get put off because of uncertainty over Britain's future in the EU, he said.

About a third of executives surveyed said they are looking for alliances with other companies to make money from underused assets or reinforce r&d. Short said automotive companies and technology companies can ally themselves to explore ventures without committing significant cash.


From Automotive News