Following years of economic uncertainty and industry restructuring, strong Chinese sales and pent-up demand for replacement cars in the US have provided some recent reasons for optimism. But the automotive industry remains at a crossroads (forgive the pun). Its future is bound closely to the growth of technology, with consumers increasingly focused on fuel efficiency, hybrid and electric vehicles, and safety.
A lot of the growth we see in safety is being driven by regulation. The European New Car Assessment Programme (NCAP) regulations reward and recognise car manufacturers that develop new safety technologies. From a regulatory perspective, from 2014 it will not be possible for cars to receive a 5* rating without an active safety component. This creates an element of embedded structural growth that should help to partly offset the cyclical nature of the broader automobiles sector.
Firms that specialise in developing technology and components seem well positioned to meet the demand for safety technology and therefore offer good investment opportunities. Continental, French vehicle components provider Valeo and Swedish-American automotive safety systems producer Autoliv are amongst the names that we like at present. A key benefit of these component suppliers is that not only are they at the forefront of these heavily-demanded technologies but in having partnerships with several automakers around the world, their revenues are spread across numerous car brands and geographies, helping to spread risk.
John Bennett, Director of European Equities
These are the views of the fund manager at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.
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