With consumer confidence at all time low, the automotive industry is struggling to see the light at the end of the global economic downturn.According to an analysis by Deloitte Touche Tohmatsu (“Deloitte”), the global automotive industry is expected to benefit directly from an injection of around US$50 billion in economic stimulus funds.

The funds, however, are just a small percentage of the estimated $3.6 trillion in economic stimulus packages committed by various governments around the world. (Refer to Table 1: Economic stimulus efforts target the automotive industry).

“What the automotive industry most needs is to have customers buy again,” says Hans Roehm, global managing partner with Deloitte’s Global Manufacturing Industry Group. “The government stimulus efforts so far are helpful, but more is required to really boost consumer confidence and drive them back into the showrooms to buy cars. That’s when we will see a real turning point for the industry.”

A substantial portion of the stimulus funds have been committed to stricken auto makers General Motors Corp. (GM), Chrysler LLC and GMAC LLC, the auto-lending arm of GM, as part of the US$700 billion Troubled Asset Relief (TARP) programme in the United States.

“The mix of the direct assistance to automakers and other incentives to spur demand in the market has been a lifeline to industry survival,” says Michelle Collins, automotive industry leader for the Deloitte member firm in the United States. “However, incentives to increase demand must go hand in hand with measures to increase consumer confidence and to make credit more free flowing to finance consumer purchases and dealer inventory plans.”

The Deloitte’s Global Manufacturing Industry Group’s analysis shows that in markets like China, Italy, France and Germany, consumers are being encouraged to replace their older model vehicles with new ones.

“This scrap bonus concept seems to be working and perhaps could be adopted in more markets”, says Martin Hoelz, automotive industry leader for the Deloitte member firm in Germany. “It’s a simple but innovative idea which at least here in Germany is helping to stimulate demand. New car sales in Germany spiked 22 percent last month, bolstered partly due to the €2,500 (US$3,200) subsidy for people who turn in their old car and buy a new one.”

The Deloitte analysis reveals that in nearly all of the 18 markets covered, the economic stimulus efforts is expected to increase sales in the smaller car segments. In addition, alternative fuel technology is also an area receiving attention from stimulus packages in markets such as Australia, Canada, China, Germany, France, Spain, United Kingdom and United States.

“Innovation is at the heart of the automotive industry”, remarks Kevin Gromley, managing director for Deloitte member firms’ manufacturing industry groups in the Asia-Pacific region. “The stimulus efforts will encourage the automotive companies to continue their product development efforts. And for markets like Australia and China, this support is vital to sustaining the research investments into greener alternative fuel technologies”.

“Incentives like these will translate to consumers spending once more,” adds Roehm. “But it also encourages corporations to take action. Just as an example, the Deloitte member firm in the UK launched a new Deloitte All Employee company car scheme so that all 12,000 employees nationwide can enjoy affordable, environmentally friendly vehicles It just goes to show that you don’t have to be in the automotive industry to make an impact.”

Table 1: Economic stimulus efforts targets the automotive industry

Country	# of cars produced per 1,000 population>	Total light vehicle sales 2008 (in ‘000)	Total light vehicle forecast 2009 (in ‘000)	Value of stimulus package (in US$)	Value pertaining to Auto sector in the stimulus package (in US$)	Stimulus supports alternative fuel technology?	Stimulus to have a positive impact on small car sales?	Stimulus incentivizes the replacement of old vehicles?
Canada	574	841	675	$32bn	$3.28bn	Yes	Yes	No
US	450	13127	9826	$1678bn	$23.4bn	Yes	Yes	No
Argentina	163	442	352	$3.9bn	$1bn	No	Yes	No
Brazil	110	2545	2666	$100bn	$5.3bn	No	Yes	No
Mexico	156	590	448	$54bn	$648mn	No	Yes	No
Australia	575	626	510	$34bn	$4bn	Yes	Yes	No
China	25.4	6760	6596	$586bn	$1.5bn	Yes	Yes	Yes
India	11.4	1532	1508	$8bn	Tax cuts	No	Yes	No
Japan	491	4292	3801	$421bn	-	-	-	-
Korea	207	939	563	$141bn	Tax cuts	-	Yes	No
SE Asia	176	932	752	^$33.9bn	-	-	-	-
Germany	549	3079	2847	$62.5bn	$2.3bn	Yes	Yes	Yes
France	503	2108	1901	$48bn	$1.32bn	Yes	Yes	Yes
Italy	567	2157	1727	$103bn	$2.56bn	Y	Yes	Yes
Russia	222	3256	2785	$220bn	-	No	No	No
Spain	499	1087	761	$14.3bn	$1.02bn	Yes	Yes	No
UK	506	2132	1725	$34.5bn	$3.29bn	Yes	Yes	No
Central and Eastern Europe#	332	1001	790	*$3.7bn	-	-	-	-